NEW YORK (MNI) – The following are excerpts from a statement issued
by Moody’s Wednesday:

Moody’s downgrades Bank of America Corp. to Baa1/P-2; Bank of
America N.A. to A2, P-1 affirmed

Moody’s Investors Service has downgraded the ratings of Bank of
America Corporation’s (BAC) holding company to Baa1 from A2 for
long-term senior debt and to Prime-2 from Prime-1 for short-term debt.
The long-term deposit ratings of Bank of America N.A. (BANA) were
downgraded to A2 from Aa3, while BANA’s short-term rating was affirmed
at Prime-1. The actions conclude a review for downgrade announced on
June 2, 2011. The outlook on the long-term senior ratings remains
negative.

The downgrades result from a decrease in the probability that the
U.S. government would support the bank, if needed. Moody’s believes that
the government is likely to continue to provide some level of support to
systemically important financial institutions. However, it is also more
likely now than during the financial crisis to allow a large bank to
fail should it become financially troubled, as the risks of contagion
become less acute. Moody’s is therefore lowering the amount of support
it incorporates into Bank of America’s ratings to levels reflected prior
to the crisis.

The downgrades do not reflect a weakening of the intrinsic credit
quality of BAC. BAC has made significant progress in improving in its
capital and liquidity positions, in shedding legacy and noncore assets,
in measuring and monitoring risk, and in managing its risk appetite.
These improvements have not, however, resulted in an upgrade of its
stand-alone financial strength rating or in an offset to the declining
assumption of systemic support in the long-term ratings. This is due in
large part to the risks that continue to be presented by the bank’s
exposures in its mortgage business.

The ratings affected are as follows:

Bank of America Corporation (BAC), Merrill Lynch & Co., Inc., and
all rated debt guaranteed or assumed by BAC or Merrill Lynch (including
the rated debt of Countrywide Financial Corporation): Moody’s downgraded
the long-term senior debt rating to Baa1 from A2 and the short-term
rating to Prime-2 from Prime-1. The holding company senior debt ratings
now incorporate two notches of uplift due to systemic support, down from
four notches previously. BAC’s senior subordinated debt rating was
downgraded to Baa2 from A3, and its cumulative junior
subordinated-backed trust preferred securities were lowered to Ba1 (hyb)
from Baa3 (hyb),

Bank of America, N.A. (BANA): Moody’s downgraded the long-term bank
deposit and senior bank debt ratings to A2 from Aa3 and the short-term
Prime-1 rating was affirmed. The bank financial strength rating (BFSR)
of C- was also affirmed, and the bank’s corresponding baseline credit
assessment (BCA), or unsupported rating, remains unchanged at Baa2. The
outlook on the BFSR is stable. The bank deposit and senior debt ratings
now incorporate three notches of uplift due to systemic support, down
from five notches previously. BANA’s subordinated debt was downgraded to
A3 from A1.

—

Moody’s continues to see the probability of support for highly
interconnected, systemically important institutions as very high,
although that probability is lower than it was during the financial
crisis. During the crisis, the risk of contagion to the U.S. and global
financial system from a major bank failure was viewed as too great to
allow such a failure to occur — a view borne out in the aftermath of
the Lehman failure. This led the government to extend an unusual level
of support to weakened financial institutions and Moody’s to incorporate
the expectations of such support in its ratings. Now, having moved
beyond the depths of the crisis, Moody’s believes there is an increased
possibility that the government might allow a large financial
institution to fail, taking the view that contagion could be limited.

Moody’s decision to assign a negative rating outlook reflects the
possibility it may further reduce its systemic support assumptions in
the future as a consequence of the process set in motion by the
enactment of the Dodd-Frank Act. Under the rules recently finalized by
the FDIC, the orderly liquidation authority included in Dodd-Frank
demonstrates a clear intent to impose losses on bondholders in the event
that a systemically important bank such as BAC was nearing failure. If
fully implemented, the provisions of Dodd-Frank could further lower
systemic risk by reducing interconnectedness among large institutions
and could further strengthen regulators’ abilities to resolve such
firms.

However, the final form of several critical components of
Dodd-Frank intended to reduce such interconnectedness, such as
resolution plans or changes to the over-the-counter derivatives market,
are still pending.

There is also no global process yet in place whereby regulators
could resolve a global financial company such as Bank of America in an
orderly fashion. As a result, Moody’s believes that it would be very
difficult for the US government to utilize the orderly liquidation
authority to resolve a systemically important bank without a disruption
of the marketplace and the broader economy.

The affirmation with a stable outlook of the stand-alone bank
financial strength rating at C-, which continues to map to a baseline
credit assessment of Baa2, reflects the challenges posed by the
significant contingent risks BAC continues to face in its mortgage
business. BAC has made significant improvements to its capital and
liquidity positions, continues to focus on shedding legacy and noncore
assets, has improved its ability to measure and monitor risk, and has
adopted a lower risk appetite. Nonetheless, the bank remains exposed to
potentially significant risks related to both the residential mortgage
and home equity loans on its balance sheet, as well as to mortgages
previously sold to investors.

Moody’s believes BAC has ample resources to absorb the additional
losses it is likely to experience on these exposures. However, if the
economic environment were to deteriorate and the bank were to receive
adverse legal rulings on the claims pending against it related to its
mortgage business, it could have a significant impact on BAC’s capital
position.

Moody’s also believes the variability around potential negative
outcomes is substantial, and their resolution is not entirely within the
direct control of management.

The resulting uncertainty is a constraining factor on BAC’s
baseline credit assessment, especially in light of the bank’s still
relatively modest capital position compared to its major peers.

The ratings for BAC’s cumulative junior subordinated-backed trust
preferred securities were lowered by one notch to Ba1 (hyb) from Baa3
(hyb), reflecting a reduction in the rating agency’s support assumption
for those securities. Those ratings are now consistent with Moody’s
guidelines for rating bank hybrid securities whereas previously they had
included an additional notch of uplift for systemic support. The ratings
for BAC’s noncumulative preferred stock and the HITS issued by BAC
Capital Trust XIII and BAC Capital Trust XIV, which do not incorporate
any government support, were confirmed at Ba3 (hyb). (The HITS, or
Hybrid Income Trust Securities ultimately have a non-cumulative
preferred stock claim on BAC under the terms of a forward contract.)

The methodologies used in this rating were “Bank Financial Strength
Ratings: Global Methodology” published in February 2007, “Incorporation
of Joint-Default Analysis into Moody’s Bank Ratings: A Refined
Methodology” published in March 2007, and “Moody’s Guidelines for Rating
Bank Hybrid Securities and Subordinated Debt” published in November
2009. Please see the Credit Policy page on www.moodys.com for a copy of
these methodologies.

Bank of America Corporation is headquartered in Charlotte, North
Carolina. Its reported assets were $2,261 billion at June 30, 2011.

** Market News International New York Newsroom: 212-669-6430 **

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