Bloomberg News reports that for years, Brian Moynihan told investors that his bank would be a winner when the interest rates go up eventually one day. Bank of America Corp. Had already built a solid deposit base. This would let the profits surge when there is a change of course by the Federal Reserve.
What is the State of the Rates?
Now, the rates have soared. But Bank of America is now the biggest laggard amongst the banking giants in the United States. The bank’s investments are earning less as compared to the closest rivals. Also, the stock of the bank is the worst performer so far.
What is the Reason for BOF’s State?
One of the main reasons for this state of Bank of America is that the bank has piled hundreds of billions of dollars into mortgage bonds and long-dated Treasuries. And the worst part is that it has done so at low rates. It used to prevail during the Covid-19 pandemic.
The bank’s decision continues to be a topic of negative discussion among the second-largest US bank. People are aware of the matter. The holdings show huge losses. Also, the people and banks are losing out on the best rates since 2007.
Opportunities Missed
Due to the rise in the rates, many lenders were surprised. The ensuing turmoil caused a wave of collapses in the regional bank in March. For Bank of America, the lopsided portfolio is not a threat to existence. However, it is adversely impacting its investor enthusiasm and earnings.
While speaking at an interview, Scott Siefers, associated with Piper Sandler & Co, said that the longer-dated securities are the money that is tied up. It could otherwise have been used for much more productive usage.
What about the Other Banks?
Major lenders have suffered setbacks that were tied to the bond holdings. However, Bank of America is different and stands out because of its impact and size. Out of the four biggest banks, the securities portfolio of BofA is the lowest yielding. Also, being the largest bank, it is concentrated in debt due after 10 years. As far as its value is concerned, these very holdings might erode again if the Fed follows another potential rate surge.
JPMorgan Chase & Co versus Bank of America
Compared to Bank of America, JPMorgan Chase & Co’s Jamie Dimon, the chief executive officer, said that his bank is wary that the rates are higher and might still be higher. He said that they will not invest in stuff accordingly.
Before the third quarter results, Wall Street expects that the net interest income of Bank of America will rise 2.7% for the period. This is the lowest among the peers compared to the 27.5% projection of JPMorgan, 3.7% of Citigroup Inc., and 5.5% of Wells Fargo & Co.
