March 25 (Bloomberg) -- Bank of America Corp., the biggest U.S. lender, was downgraded by Moody’s Investors Service on concern that the company may need a third round of financial aid from the government.

Ratings on the bank’s senior debt were reduced to A2 from A1, the senior subordinated debt fell to A3 from A2, and the junior subordinated debt rating was cut to Baa3 from A2, according to a statement today by Moody’s. The preferred stock rating was downgraded to junk-level B3 from Baa1.

Bank of America “remains vulnerable to further declines” in its ratio of tangible common equity to assets as borrowers default, and the lender may be forced to ask the government for more aid, suspend preferred stock dividends or “even offer a distressed exchange to preferred shareholders,” Moody’s said.

The bank, which reported its first loss in 17 years in the three months ended Dec. 31, has accepted capital and guarantees from the Treasury valued at $163 billion, including aid to its units. Chief Executive Officer Kenneth Lewis has said his Charlotte, North Carolina-based bank will get through the credit crunch without more help from taxpayers.

Lewis said in February the bank expects to boost its tangible common equity ratio to 3 percent at the end of 2009 by selling business units and reducing assets. The measure was 2.68 on Dec. 31.

‘Acute’ Pressures

Pressures on the firm’s capital “are made more acute because U.S. banks’ access to the equity market is shut or very limited at best,” which “increases the likelihood of a capital initiative by the U.S. government,” the ratings firm said.

Bank of America stock has plunged by about two-thirds since the lender raised $10 billion selling shares for $22 each in October. The lender advanced 48 cents today to $7.70 at 4 p.m. in New York Stock Exchange composite trading.

Earnings are “likely to be weak and, in light of Bank of America’s sizable preferred dividend, could place significant additional pressure upon the company’s already modest tangible common equity position,” Moody’s Senior Vice President David Fanger in the statement.

The Moody’s report echoes comments earlier in the day about Wells Fargo & Co., which the ratings firm also downgraded on the possible need more U.S. aid. Scott Silvestri, a Bank of America spokesman, had no immediate comment today.

Bailout Package

The bank’s aid package was expanded in January after losses from newly acquired Merrill Lynch & Co. spiraled beyond what Lewis expected.

Lewis had said Bank of America expects revenue to top $100 billion this year with earnings “close to $50 billion” before taxes and provisions. “That kind of cash flow can solve a lot of problems, given time and an improving U.S. economy,” he said during a speech in Boston this month.

Bank of America is cutting expenses after its acquisitions of Countrywide Financial Corp., formerly the largest U.S. home lender, and Merrill, the world’s largest securities brokerage.

To contact the reporter on this story: Linda Shen in New York at lshen21@bloomberg.net

Last Updated: March 25, 2009 16:02 EDT