Fitch Ratings said it could cut Bank of America's viability rating one notch if certain concerns regarding the company's exposure to the residential mortgage business are worse than what the rating agency expects.

In its press release, Fitch said it is worried about the size of B of A's litigation risk, as well as its weaker capitalization, when compared to its competition.

At the time of June settlement of related to mortgage-backed securities issued by Countrywide, Fitch affirmed B of A ratings, based on the expectations that it would clarify potential losses due to reps and warranties and provide clarity.

But there is uncertainty regarding court approval of the settlement. In addition B of A is facing other legal issues, including suits or potential litigation involving AIG, state attorney generals and the Federal Housing Authority.

Fitch said it is planning to meet with B of A and any affirmation of the current "A-" viability rating could depend on favorable resolution of the litigation risk, a credible plan to enhance its capital position, continuation of favorable trends in loan quality plus the maintenance of a sound liquidity/funding profile. It added B of A is susceptible to a further decline in residential real estate values.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.