Bank of America $BAC is facing $100 billion in paper losses in bond markets, due to interest rate increases (similar to why Silicon Valley Bank $SIBV and First Republic $FRC collapsed).
The losses are weighing on BofA's net interest margin, an important gauge of performance. BofA's stock has dropped 15% this year, making it the worst performer of any of its large rivals.
Although BoA insists that these losses are merely on paper and it doesn't intend to sell these bonds, the reality remains that the bank's potential to generate income from its customer deposits could be significantly limited.
The losses are the result of a strategy the bank implemented three years ago, when it pumped $670 billion in pandemic-era deposit inflows into debt markets.
The value of BofA's securities portfolio has plunged as yields have risen and bond prices have fallen. At that time, bond prices were high and yields were low. However, as yields have risen and bond prices have dropped, BoA has seen a staggering loss in the value of its portfolio. This loss is double the figure reported by its biggest peers, reflecting the bank's aggressive strategy to favor bonds over cash.
BofA's chief financial officer, Alastair Borthwick, said the bank is in the process of winding down its securities investments.
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