Moody's on Jan. 24 changed its ratings outlook for Bank of America Corp. to positive from stable, also affirming all of the company's ratings, including its Baa1 senior debt rating.
Also affirmed were Bank of America NA's A1 long-term deposit, issuer and senior debt ratings; Prime-1 short-term deposit and senior debt ratings; baseline credit assessment of baa2; and counterparty risk assessment of A1(cr)/P-1(cr).
The rating agency believes that it is very possible that over the next 12 to 18 months, BofA will see its profitability strengthen on a sustainable basis, while maintaining a conservative risk profile and low earnings volatility. Should Bank of America achieve this, Moody's stated that it could lead to a ratings upgrade for the company.
For Moody's, the company continues to be challenged by its modest profitability, low risk-based capital ratios compared to peers, and risks posed to creditors due to the inherent volatility, risk opacity and confidence sensitive customer base of BofA's large global capital markets business. On the upside, the company only has a modest reliance on wholesale funding compared to peers and a robust liquidity profile.
In addition, as the company's interest rate profile is asset-sensitive, the rating agency anticipates that an increase in interest rates, which Moody's also expects to rise further over the next year, could boost the company's earnings. However, Moody's also cautioned that should the bank be pressured to increase interest rates paid on deposits more than it anticipates due to heightened competition for deposits, the benefits from a rate hike would likely not be sustainable.