Bank of America reported unrealized losses of $131.6 billion on securities in the third quarter, growing from the second quarter, but the bank does not expect the portfolio will generate actual losses in the long-term.
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, reports Reuters.
Analysts say it is highly unlikely that Bank of America would sell the securities at a loss because the lender has strong liquidity with consumer deposits and higher capital. Keeping securities until maturity also gives it the flexibility to avert mark-to-market losses.
Banks use the held-to-maturity designation to buy less risky securities that give them downside protection, even though in a rising interest rate environment there is limited upside potential.
“All of these are unrealized losses are on government- guaranteed securities,” Bank of America’s chief financial officer, Alastair Borthwick, told reporters on conference call discussing third-quarter earnings. “Because we’re holding them to maturity, we will anticipate that we’ll have zero losses over time.”
Bank of America had reported early $106 billion in paper losses in the second quarter.
Bank of America, 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.
