Bank of America's $100 Billion (Loss) Man

Bank of America (BAC) CEO Brian Moynihan gorged on debt securities back in 2021 when yields were low. As yields have risen over the past two years, BAC has racked up $89 billion in unrealized losses as of Sept. 30th. That figure probably sits around $100 billion today as yields have risen since the September quarter. In the meantime, Moynihan is sitting on his hands.

• Moynihan hopes that rates will plummet, thereby reinflating the value of his debt security portfolio, and he won’t have to take an earnings hit as those securities mature (if Moynihan lasts as CEO that long).

• The problem is that BAC is taking a $32 billion annual earnings hit by doing nothing.

  • BAC earns a 2% yield on its approximately $900 billion debt security portfolio for which it has suffered losses. 2% yields approximately $18 billion in interest income.

  • If BofA had sold those securities in 2023 when prices were higher, it could have reinvested the proceeds in securities that were yielding approximately 6%.

    • Let’s assume BAC would have generated $825 billion in proceeds had it sold its $900 billion debt security portfolio. Let’s assume BAC invested the proceeds in securities that yielded 6% on average, i.e., $50 billion in annual interest income.

    • $50 billion - $18 billion = $32 billion. BAC would cover its paper loss in just over 2 years with the incremental $32 billion of annual interest income. Instead, BAC is suffering a $32 billion annual earnings drag.

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