The loss on
Bank of America
The huge portfolio of debt securities expanded by nearly $7 billion to $105.8 billion in the second quarter, according to additional data released in conjunction with the bank’s earnings release Tuesday morning.
The portfolio of “held-to-maturity” debt where the losses are located totaled $614 billion at the end of the quarter, down from nearly $625 billion at the end of the March quarter.
Barrons wrote on Monday that the loss on this portfolio likely increased in the second quarter. The loss is much greater than that of
: JPMorgan’s loss on its held-to-maturity portfolio was $33 billion at the end of the second quarter.
Bank of America’s portfolio, which consists mostly of agency mortgage-backed securities, could weigh on the bank’s interest margins as deposit costs continue to rise.
The bank’s total debt portfolio, with an average yield of around 2.5%, is significantly below the market, with current mortgage-backed securities yields exceeding 5%. The bank’s mortgage-backed securities portfolio, totaling about $485 billion, was valued at about 83 cents on the dollar at the end of the second quarter.
The bank’s net interest yield narrowed to 2.06% in the second quarter from 2.2% in the first quarter, while net interest income fell $300 million sequentially to 14 .3 billion in the second quarter. The bank cited “higher deposit costs” as a factor behind the drop in interest income.
The bank’s deposit fees rose sharply to 1.82% in the second quarter from 1.38% in the first quarter, indicating that Bank of America, like other banks, is feeling pressure to raise rates deposit since money market funds and treasury bills yield around 5%.
Bank of America’s earnings per share rose 20% to 88 cents in the second quarter from the year-ago period, beating estimates of 84 cents.
Bank of America stock, which is the worst performer among its major bank peers this year, fell 1.2% to $29.06 in premarket trading. Bond losses are a factor in the stock’s weakness relative to its peers. The stock is down 11% year-to-date through Monday, while shares of industry leader JPMorgan Chase (JPM) are up 14%.
“We delivered one of the strongest quarters and first halves in the company’s history,” Brian Moynihan, the bank’s CEO, said in a statement.
Moynihan and Alastair Borthwick, the bank’s chief financial officer, could be asked about the bond losses during the company’s earnings conference call, which began at 8:30 a.m. Eastern.
Bond losses in the held-to-maturity portfolio do not have to be reflected in the bank’s capital ratios, although the economic losses are real. Those losses would have represented a significant portion of its $185 billion in tangible equity at the end of the second quarter.
The bank argues that the held-to-maturity portfolio, mostly agency mortgage-backed securities with minimal credit risk, will eventually mature and the losses will disappear over time. Principal payments were approximately $10 billion per quarter and the size of the held-to-maturity portfolio decreased by approximately $10 billion in the second quarter sequentially.
Write to Andrew Bary at firstname.lastname@example.org