BofA Securities Europe SA Assigned Preliminary 'A+/A-1' Ratings; Outlook Stable

  • BofA Securities Europe SA (BofASE) is a new subsidiary created by Bank of America Corp. (BAC) as part of its Brexit plan to ensure the continuity of securities trading activities for clients within the European Economic Area (EEA) once the U.K. leaves the EU.
  • BAC will utilize its existing capital markets infrastructure, implement risk management mechanisms, and onboard clients to BofASE from Merrill Lynch International (its current primary broker dealer in the EEA), with operations scheduled to commence in the first quarter of 2019.
  • We are assigning preliminary 'A+/A-1' long- and short-term issuer credit ratings to BofASE, in line with other core subsidiaries of BAC, reflecting our view that the group will provide support to the subsidiary under all foreseeable circumstances, if needed.
  • The stable outlook mirrors that on its ultimate parent BAC and reflects our expectation that BofASE will successfully operate as a core subsidiary over our two-year outlook horizon.
PARIS (S&P Global Ratings) Dec. 17, 2018--S&P Global Ratings today assigned 
its preliminary 'A+/A-1' long- and short-term issuer credit ratings to the 
France-based BofA Securities Europe SA (BofASE) with a stable outlook. We also 
assigned preliminary 'A+/A-1' long- and short-term resolution counterparty 
ratings (RCRs) to BofASE.

All of the ratings assigned to BofASE are preliminary. Although BofASE has 
received all necessary regulatory approvals to commence trading, we will view 
it to be fully operational only once the onboarding of its European Economic 
Area (EEA) clients currently booked at Merrill Lynch International (MLI) is 
largely completed and the entity is fully capitalized, both of which we expect 
to occur in the first half of 2019. Once achieved, we will convert our 
preliminary rating to final. Although we believe the likelihood of a Brexit 
annulment is very low, it could slow down the onboarding of EEA clients or 
discourage them from booking their activities with BofASE.

Bank of America (BAC) has disclosed that MLI, its U.K.-based broker-dealer for 
non-U.S. clients, will onboard EEA clients and activities to BofASE, a newly 
created entity based in Paris. This EU passported entity will ensure that BAC 
will continue to have access to EEA markets and clients even in the event of a 
"hard Brexit." Given the importance of the EEA equities business to the group, 
as well as the significant number of EEA clients, we view BofASE as a 
materially important subsidiary to the group and fully integrated into the 
overall strategy. 

We therefore assess it as a core subsidiary and align our ratings with the 
'a+' supported group credit profile (GCP) and 'A+/A-1' ratings on BAC's other 
core operating subsidiaries, including Bank of America Merrill Lynch 
International DAC, the Ireland-based bank affiliate also part of the group's 
Brexit plan. We use the supported GCP as a reference point as we expect that, 
during a resolution, BofASE would benefit from the bail-in of additional 
loss-absorbing capacity (ALAC) instruments at the holding company and continue 
to fulfill its commitments. 

BofASE is a France-based broker-dealer regulated by the "Autorité de Contrôle 
Prudentiel et de Resolution" (ACPR) and the "Autorité des Marchés Financiers" 
(AMF). BofASE is expected to become BAC's primary EEA equities broker-dealer 
post Brexit. Nevertheless, MLI will continue serving other non-U.S. clients 
(including those in the U.K.). BofASE is part of BAC's Global Markets and 
Banking segments, which is an integral business line for the group. As of 
September 2018, 40% of BAC's global revenues were generated from those 
segments, of which a meaningful portion was in Europe, the Middle East, and 
Africa (EMEA), where the group holds leading market positions (No. 1 in 
European equity trading share and execution services, and No. 2 in pan- 
European equity trading).

BAC has historically maintained an adequate capital position at MLI, and we 
expect BofASE to be sufficiently capitalized with a common equity Tier 1 
(CET1) ratio meaningfully above the minimum capital requirement at the go-live 
date. Under EU regulatory requirements, BofASE should demonstrate 
self-sufficiency in terms of liquidity. In addition, we expect that BAC and NB 
Holdings (an intermediate holding company) would downstream capital and 
liquidity in a resolution scenario to execute its single point of entry 
strategy for the group. We also expect a significant proportion of BofASE's 
funding to stem from its ultimate parent, BAC.

We set our RCR on BofASE in line with the institution's issuer credit ratings, 
as we do for BAC's other operating subsidiaries. We set the RCR on BAC in line 
with our issuer credit rating, rather than above it, because the resolution 
framework in the U.S. does not explicitly protect any category of liability 
from default. That is, we do not consider that the bail-in resolution 
framework in the U.S. supports a clear expectation that any type of senior 
liability at a given operating subsidiary would have a lower likelihood of 
default than any other senior liability at that subsidiary.

The stable outlook on BofASE reflects that on its ultimate U.S.-based parent, 
BAC. BofASE's sole purpose is to book future EEA activities currently 
conducted by the U.K.-based broker dealer MLI, and keep providing the same 
services to those clients post Brexit. During the first half of 2019, we 
expect BofASE to become BAC's primary EEA equities broker-dealer and be able 
to launch its trading activities once EEA clients are onboarded. 

We could lower the rating if we considered that BofASE was no longer a core 
subsidiary of BAC. This could occur if BofASE did not manage to onboard a 
significant portion of its clients with EEA activities from MLI, resulting in 
BofASE not being a key subsidiary for the group. It could also be triggered by 
an extended period of weak performance at BofASE or the equity trading 
activities of the EEA region becoming less relevant for the group.

We could raise the rating on BofASE if we were to raise our ratings on BAC's 
core operating subsidiaries, which could stem from an upward revision of its 
supported GCP. This could occur on the back of a significant improvement of 
the overall group creditworthiness. 
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