Moody’s Downgrades Bank of America, Citigroup

blr-editor | September 21, 2011 | Comments (0)

Bank of America faces a myriad of problems

Moody’s today sideswiped Bank of America (BoFA), downgrading its long-term debt rating by two levels to investment-grade “Baa1” from “A2” and to Prime-2 from Prime-1 for short-term debt.

The ratings agency also cut the bank’s long-term deposit ratings to “A2” from “Aa3.”

In reducing the ratings, Moody’s cited the lowered likelihood that the U.S. government would step in to rescue Bank of America in the event its finances worsened.

Bank of America continues to face mortgage-related lawsuits by various states and investment companies, stemming from its acquisition of Countrywide and its allegedly fraudulent mortgage portfolio .

The outlook on long-term senior ratings remains negative. Moody’s also cut the short-term credit of Citigroup Inc. and the long- term ratings of senior debt at Wells Fargo & Co.

Bank of America shares were down 38¢, or 5.5% to $6.52 in afternoon trading.

Also, credit-default swaps for Bank of America rose 45 basis points to 380 basis points as of yesterday noon. The swaps were at 340 prior to the announcement. This means that it has become more expensive to protect debt from the bank.