Moody's lowers BofA, Merrill Lynch

Moody's Investors Service said it lowered the debt ratings of Bank of America Corp. and Merrill Lynch & Co., Inc., including the issuer ratings to A1 from Aa3, preferred stock to Baa1 from A2, senior unsecured regular and convertibles bonds to A1 from Aa3 and subordinated regular bonds to A2 from A1.

The Prime-1 ratings on the short-term obligations of all Bank of America entities were affirmed.

The outlook is negative.

These actions had no impact on the FDIC-guaranteed debt issued by Bank of America, which remains rated at Aaa with a stable outlook.

The downgrade follows the disclosure of substantial losses at Merrill Lynch for the fourth quarter of 2008 and more modest losses at Bank of America. At the same time, the U.S. government has agreed to limit Bank of America's exposure to additional losses in a specified pool of capital markets assets and to purchase additional Bank of America preferred stock.

Moody's said it views positively the actions taken by Bank of America to limit further losses in the asset pool, to bolster its tier 1 capital and to cut its common dividend, and its ratings continue to be supported by its strong franchise and very high systemic support.

However, in light of the magnitude of losses at Merrill Lynch, the agency said it has concerns that the risk management challenges at Merrill Lynch extend beyond the pool of assets on which Bank of America is receiving government protection.

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