Fitch Assigns BofAML Securities, Inc. Expected 'A+' and 'F1' IDRs; Outlook Stable.
KEY RATING DRIVERS
BofAMLS is a recently formed broker-dealer subsidiary of Bank of America Corporation (BAC, A/F1/Rating Outlook Stable) located and incorporated in the United States. BAC's resolution strategy prompted the pending separation of the company's U.S. institutional and retail broker-dealer businesses, both currently housed in Merrill Lynch Fenner Pierce & Smith (MLPFS, rated A+/F1/Rating Outlook Stable). BofAMLS was created to house the company's institutional business as a separately licensed broker-dealer. The retail brokerage business will remain within MLPFS.
BoAMLS's 'A+' expected Long-Term IDR is rated one notch higher than BAC's 'A' Long-Term IDR reflecting the presence of a qualifying junior debt (QJD) buffer as required under TLAC. The ratings reflect Fitch's view that BAC's QJD is expected to be sufficient to protect BofAML's obligations, which include those to derivative counterparties, from default in case of BAC's failure.
BAC currently estimates its minimum required external TLAC will be 22.5% of risk-weighted assets (RWA) or 9.5% of its SLR leverage exposure. BAC will also be subject to a minimum long-term debt requirement of 9.5% of RWA or 4.5% of SLR leverage exposure. The company has disclosed that at year-end 2017, it exceeded the TLAC and long-term debt minimum requirements that will become effective on Jan. 1, 2019.
Fitch anticipates that BofAMLS will be named a material legal entity (MLE) in BAC's next submission of its Resolution Plan. As part of this plan, in the event of a resolution of BAC, it is expected that BofAMLS would be subject to a solvent wind-down, while MLPFS would remain open for business as a continuing subsidiary. In order to facilitate the provision of sufficient resources to the MLEs to implement its resolution strategy, BAC entered into a Secured Support Agreement, prefunded its intermediate holding company, NB Holdings (NBH), and pre-positioned resources at NBH and other MLEs.
The BofAMLS's IDRs also reflect the ultimate parent's (BAC's) ability and propensity to support it. The main driver behind the rating is the role BofAMLS will play as the primary U.S. broker-dealer meeting the institutional client needs of the Global Banking and Global Markets businesses of BAC.
Fitch has assigned a Short-Term IDR of 'F1' given the Long-Term IDR is notched up due to QJD buffers. When this is the case, the lower of two possible Short-Term IDRS is assigned per Fitch's rating criteria.
Further, BofAMLS's 'A+(EXP)'/'F1 (EXP)' Long- and Short-term IDRs incorporate Fitch's expectation that it will be named a material legal entity in BAC's next resolution plan, obtain key regulatory approvals, and receive planned capital injections. This expected rating incorporates the assumption that most current MLPFS institutional clients novate their accounts to BofAMLS as anticipated.
BofAMLS's Stable Rating Outlook is in line with its parent's Rating Outlook. BAC's and MLFPS's ratings are unaffected by today's rating action.
BofAMLS's expected ratings will convert to final ratings upon final receipt of the remaining key regulatory approvals and further capital injections. Fitch currently expects this will occur in May 2018, though the ultimate timing may change.
BofAMLS's ratings would be sensitive to changes in Fitch's view of the relative importance of this entity to BAC. The ratings may also be impacted by changes in BAC's IDRs. Fitch anticipates the rating will mainly be driven by the parent's ratings, as the relative importance of this entity is not expected to materially change.
Ratings may also be impacted in the event that BofAMLS is unable to receive the key regulatory approvals, if BofAMLS is not named as a MLE in the next resolution plan, it fails to be sufficiently capitalized, or most current MLPFS institutional clients do not novate their accounts to this entity. While Fitch acknowledges the material outstanding regulatory approvals are outside of the company's control, failure to achieve these milestones in a timely manner may lead Fitch to withdraw the expected ratings.
Fitch has assigned the following expected ratings:
BofAML Securities, Inc.
--Long-term IDR 'A+(EXP)': Outlook Stable,
--Short-term IDR 'F1(EXP)'.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||May 30, 2018|
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