Following the Bank of America‘s (BAC) announcement late Wednesday that it will repay the entire $45 billion of bailout money it has received from the government for its participation in the Troubled Asset Relief Program (TARP); Fitch Ratings upgraded the individual, preferred and trust preferred ratings of BofA and its subsidiaries.

The rating agency upgraded the individual ratings to “C/D” from “D,” preferred stock to “BB-” from “B+” and trust preferred to “BB” from “BB-.” According to the agency, now BofA will have adequate financial resources to manage the challenges. Also, Fitch views the government’s approval of BofA’s capital plan as the strongest element of the transaction.

The repayment of TARP money will free the bank from government involvement in its affairs and pay restrictions, even though the Treasury will hold BofA warrants. Also, the TARP repayment will make it easier for the bank to recruit a new chief executive to replace outgoing CEO Ken Lewis.

The move is expected to reduce the bank’s earnings in the fourth quarter of 2009 by $4.1 billion.

BofA’s third quarter 2009 loss came in at 26 cents per share, substantially worse than the Zacks Consensus estimated loss of 10 cents. Results were hurt primarily by continued weakness in the overall economy as well as stress on the consumers, resulting in high credit costs and loan loss. Though earnings benefited from the profit generated by its wealth management business, the company experienced continued net interest yield compression and credit quality deterioration.

Additionally, the company is facing problems over new CEO appointment and litigation issues over the Merrill Lynch acquisition. However, we anticipate continued synergies from the company’s large scale operation and balance sheet restructuring.

Zacks Investment Research

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