A new study reveals that the top 4 big banks in the U.S. have approximately $205 billion in unrealized losses.
Financial Times reports that Bank of America, Wells Fargo, JPMorgan Chase and Citigroup have accumulated these losses due to bad bets in the bond market, citing fresh data from the Federal Deposit Insurance Corporation (FDIC).
Bank of America has it the worse out its peers as the bank faces a painful $100bn paper loss as bonds have plunged due to rising yields.
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.
“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 -15% this year-to-date.
Bank of America Continues to Lead in Market Losses
Bank of America is currently leading in market cap losses compared to its peers this year.
Dow Jones market data shows Bank of America has suffered a -$36.9 billion drop in market capitalization since March 8 of this year.
In second place is U.S. Bancorp with -$20.11 billion, followed by Truist at -$17.49 billion.
Wells Fargo earns fourth place with a market cap loss of -13.91 billion and PNC in fifth with -$8.69 billion in losses.
Regulators have said that the banking system is safe and that deposits have stabilized after record outflows across the system in the first quarter.
Many banks still posted solid first-quarter profits because they were able to charge more interest on loans than they paid to depositors, per WSJ.
However, investors and customers remain on alert.
A report in June showed that Americans pulled $472bn from big banks in the first quarter, more than the $100 billion previously reported.
The $472 billion outflow in deposits outpaced the drop that banks saw following 2008 financial crash shattering a 29-year record,” says Boston Business Journal.
Investors dumped banks after the collapse of Silicon Valley Bank and Signature Bank in March which sparked a crisis of confidence in the system and led short sellers to take advantage of the volatility.
Now banks are bracing for more turmoil heading into the third quarter this year.
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