Bank of America Corp. and PNC Financial Services Group Inc. opened up their wallets in 2008, making some bold moves by picking up distressed peers. And while the deals may have long-term growth potential for the two banks, credit rating agencies Standard & Poor's and Moody's Investors Service have some reservations over the acquisitions.
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Moody's downgraded BofA Thursday, citing some challenges of integrating its purchase of Merrill Lynch & Co., a deal which closed on Jan. 1. The BofA reduction followed S&P's rating cut of PNC on Wednesday because of the possible losses it may incur as a result of its purchase of rival National City Corp.
Lowering its debt rating on BofA one notch to Aa3, the fourth-highest investment grade, from Aa2, Moody's pointed to "weak earnings, combined with Bank of America's sizable quarterly dividends of about $3 billion, will limit internal capital creation and constrain its ability to reduce leverage."
Meanwhile, Standard & Poor's downgraded its rating on PNC to A from A+, blaming the expectation that it would lose $20 billion in cumulative losses from loans in National City's portfolio. The move expanded PNC's presence in 12 states, but the deal brought with it obvious exposure to risky mortgages. - Gerald Magpily
