Bank of America reported unrealized losses of $131.6 billion on securities held until maturity in the third quarter, growing from nearly $106 billion in paper losses in the second quarter.
The second-biggest U.S. lender had about $603 billion in held-to-maturity securities, it said in a filing on Tuesday, shrinking from $614 billion in the second quarter.
Unrealized losses have come under closer scrutiny by investors since March. At the time, Silicon Valley Bank sold a portfolio of its holdings at a sharp loss, precipitating its collapse and fueling the worst industry turmoil since the 2008 financial crisis.
Analysts say it is highly unlikely that Bank of America would sell the securities at a loss.
“All of these are unrealized losses are on government-guaranteed securities,” Bank of America’s chief financial officer, Alastair Borthwick, told reporters on a conference call discussing third-quarter earnings. “Because we’re holding them to maturity, we will anticipate that we’ll have zero losses over time.”
And yet the holdings of low-yielding assets have also constrained the second-largest U.S. lender’s ability to make higher profit from deploying its cash in money markets or other assets with greater returns.
However, the company earned $7.8 billion, up 10% from $7.1 billion a year earlier. The earnings amounted to 90 cents per share. That beat the 83 cents expected by analysts polled by FactSet. Revenue rose 3% to $25.2 billion, beating expectations for $25.1 billion
JPMorgan Chase had unrealized losses of $40 billion in its HTM portfolio in the third quarter.
Citigroup did not disclose paper losses on its portfolio for the third quarter. They stood at $24 billion at the end of the second quarter.
Banks park securities under either available-for-sale (AFS) or held-to-maturity securities. AFS securities are carried at fair value and subject to mark-to-market losses. If banks have the intention to hold debt securities until maturity they keep them in held to maturity portfolio.
U.S. banks could be grappling with at least $650 billion of unrealized losses in their securities portfolios, according to an estimate from Moody's after prospects of interest rates staying higher for longer led to a bond market rout in the third quarter.