Moody's may cut Bank of America's debt rating

NEW YORK (Reuters) - Moody's Investors Service on Friday said it may cut Bank of America Corp.'s credit rating, citing the bank's plan to acquire mortgage lender Countrywide Financial Corp. for $4 billion.

Fitch Ratings, however, affirmed Bank of America's rating while keeping its outlook negative, which indicates that a ratings downgrade is possible in the next one to two years.

Moody's, Fitch and rival Standard & Poor's also said they may raise Countrywide's ratings due to the proposed merger.

Moody's decision on Bank of America will focus on the bank's ability and willingness to raise capital to support its balance sheet after a number of sizable acquisitions, including Countrywide, Moody's said in a statement. It currently rates Bank of America "Aa1," the second-highest investment grade.

Moody's said Bank of America's capital position is low and its ability to generate capital through earnings is challenged because of a difficult operating environment.

"The transaction gives Bank of America a leading position in mortgage banking but presents challenges, including integration, volatile mortgage asset valuations and potential litigation," Moody's said.

Moody's also said it may raise Countrywide's rating, now "Baa3," the lowest investment grade, citing its pending acquisition by higher-rated Bank of America.

While S&P said it may raise Countrywide's rating, the agency also warned it could reverse course, and review Countrywide for a downgrade, if the status of the merger changes.

S&P currently awards Countrywide a "BBB-plus" rating, the third-lowest investment-grade ranking, but had said in August that it might downgrade the mortgage lender.

Bank of America carries an "AA" rating, which is the third highest investment-grade ranking.

(Reporting by Dena Aubin and Neil Shah; Editing Leslie Adler)