Bank of America (NYSE:BAC) is facing a painful $100bn paper loss as bonds have plunged due to rising yields.
Financial Times reports Bank of America exceeded unrealized bond market losses compared to the bank’s largest peers.
JPMorgan Chase and Wells Fargo — the nation’s first and third-largest banks each had about $40bn in unrealized bond market losses, while fourth-largest Citigroup’s paper losses were $25bn.
Three years earlier, Bank of America had made the decision to pump the majority of $670bn in pandemic-era deposit inflows into debt markets at a time when bonds traded at historically high prices and low yields.
However, with today’s rising yields and a falling bond market, banks are experiencing a massive blow.
The losses at Bank of America accounted for one fifth of the $515bn in total unrealized losses in the securities portfolios among the nation’s nearly 4,600 banks at the end of the first quarter, FDIC data showed.
“BofA CEO Brian Moynihan has done a phenomenal job in handling the bank’s operations,” said Dick Bove, a veteran bank analyst who is the chief strategist at boutique broker Odeon Capital.
“But if you look at the bank’s balance sheet, it’s a mess.”
“Bank of America has said it has no plans to sell the underwater bonds, avoiding crystallized losses that for now exist only on paper,” says FT.
Reports say the bank currently has $370bn in cash and is not at risk like SVB after the Fed’s annual stress test fared well.
Bank of America stock is down more than -14% this year-to-date.
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Latest Bank News / Other Recent Bank News
Big banks could lose a whopping $541bn in a doomsday scenario says the Fed in its annual stress test.
The passing grades given by the Fed on Wednesday to banks including JPMorgan Chase and Goldman Sachs lent support to claims from Wall Street executives and regulators that systemically important banks can withstand heavy losses.
In other words, big banks such as JPMorgan and Goldman Sachs are too big to fail despite big turbulence in the banking sector.
JPMorgan and Goldman Sachs are two of the most scandalous banks with numerous fraud and market manipulation cases held against them.
It comes as no surprise that these banks will be left standing when smaller banks get acquired or end up collapsing.
JPMorgan recently deleted 47 million emails required in a probe by the SEC and Fed — the bank paid only $4 million in fees and neither admitted nor denied any wrongdoing.
According to the SEC, JPMorgan has been unable in at least 12 civil securities-related regulatory probes to comply with subpoenas and document requests for communications that had been permanently deleted.
The bank also paid a $290 million settlement related to the Jeffrey Epstein case in attempts to stay away from the spotlight any longer.
The Fed stress tests are an annual exercise required under the post-2008 crisis Dodd-Frank financial regulations that gauge whether banks’ loss-absorbing capital ratios would remain above minimum requirements in the event of an economic catastrophe.
This year, banks needed to show they could withstand unemployment rising to a peak of 10%, commercial real estate prices plunging 40%, house prices declining 38% and short-term interest rates falling to almost zero, per FT.
Of the 23 banks tested, Deutsche Bank’s US subsidiary suffered the biggest capital hit, followed by UBS Americas.
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