In a shocking announcement, Bank of America revealed that it suffered a massive unrealized loss of $131.6 billion on its securities portfolio in the third quarter. This is the largest quarterly loss ever reported by a U.S. bank and represents a significant deterioration of its financial position.
The loss was mainly driven by a sharp decline in the value of its holdings of U.S. Treasury bonds, corporate bonds, mortgage-backed securities and other fixed-income assets. The bank attributed the loss to the unprecedented rise in interest rates and inflation expectations, which negatively affected the prices of these securities.
The bank said that the loss was unrealized, meaning that it did not affect its cash flow or earnings, and that it could reverse in the future if market conditions improve. However, the loss also reduced the bank’s regulatory capital ratios, which measure its ability to absorb losses and comply with regulatory requirements. The bank said that it remained well capitalized and above the minimum thresholds, but that it would take actions to strengthen its capital position.
Tekedia Mini-MBA edition 16 (Feb 10 – May 3, 2025) opens registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
The announcement sent shockwaves across the financial markets, as investors feared that other banks could face similar losses and that the banking system could face a liquidity crisis. Bank of America’s stock price plunged by more than 10% on the news, dragging down other financial stocks and the broader market indices. The yield on the 10-year Treasury bond spiked to 3.5%, the highest level since 2019, reflecting the increased risk premium demanded by investors.
The loss also raised questions about the bank’s risk management practices and its exposure to interest rate risk. Some analysts criticized the bank for holding such a large portfolio of securities with long maturities and low yields, which made it vulnerable to rising rates. They also questioned the bank’s hedging strategies and its use of derivatives to mitigate its risk.
The loss had a major impact on Bank of America’s balance sheet and capital adequacy. The loss reduced the bank’s book value by 15%, erasing the gains it had made in the previous quarters. The loss also lowered the bank’s regulatory capital ratios, which measure its ability to absorb losses and comply with regulatory requirements. The bank said that it remained well capitalized and above the minimum thresholds, but that it would take actions to strengthen its capital position.
Bank of America’s CEO Brian Moynihan defended the bank’s strategy and said that it was well prepared for different scenarios. He said that the bank had a diversified portfolio of securities that provided stable income and liquidity, and that it had taken steps to reduce its duration and increase its yield. He also said that the bank had adequate hedges and derivatives to offset its interest rate risk, and that it had stress-tested its portfolio under various assumptions.
Moynihan said that he was confident that the bank would overcome this challenge and continue to deliver value to its shareholders, customers and employees. He said that the bank had a strong core business with solid growth prospects, and that it was investing in digital transformation, innovation and social responsibility. He said that the bank was committed to supporting the economic recovery and addressing the climate change challenge.