S&P cuts Bank of America’s outlook to negative

NEW YORK (AP) – Standard & Poor’s cut its outlook on Bank of America to "negative" from "stable" Tuesday, saying bond holders could take a hit if the government steps in again to support banks.

A recent House bill would penalize bond holders if taxpayer funds are used in company-specific bailouts.

The negative outlook signals the possibility of a future downgrade.

At the same time, S&P affirmed Bank of America’s investment-grade counterparty credit ratings at A and A-1.

Standard & Poor’s Ratings Services defines an A rating as one given to a company that has a "strong capacity" to meet its debt payments over time but is more vulnerable to an economic downturn or a change in circumstances than companies that have the higher ratings of AAA or AA.

S&P credit analyst John Bartko said the outlook revision "reflects our increased uncertainty about the U.S. government’s willingness to provide additional extraordinary support to highly systemically important financial institutions in a way that will benefit debt holders."

The ratings agency cited a recently passed House bill. It said the bill would preclude the government from making company-specific bailouts, and would allow it to use public funds to assist in winding down an ailing financial institution only if its debt holders incurred losses.

Bank of America was among the hardest hit during the credit crisis. Like many banks, the Charlotte, N.C.-based company faced a wave of defaults as consumers fell behind on their loans. The company received $45 billion in loans from the government’s Troubled Asset Relief Program, which it repaid in December.

Shares of Bank of America Corp. fell 9 cents to $14.39 in afternoon trading. Shares have ranged from $2.53 to $19.10 over the past 52 weeks.