Outside Topic OT - BofA and Germany

Outside Topic OT - BofA and Germany - Printable Version

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OT - BofA and Germany - rogpodge - 07-02-2023

https://twitter.com/BossBlunts1/status/1675201131088150528

Bank of America facing the devaluation and illiquidity of $100B in US bonds. In the previous charts I posted, their exposure was the highest among the big four banks.

On a separate note, worldwide adoption of quantitative easing will potentially collapse the German central bank, causing inflation and economic instability while a war rages nearby. France and now Belgium are dealing with rioting. Interesting times.

RE: OT - BofA and Germany - OutsiderFan - 07-02-2023

PSA: Twitter no longer allows content to be seen by opening a link without logging in. So if you want people who don't have Twitter accounts to see what you are referring to on Twitter, you must embed tweets on this board like so:

[tweet]https://twitter.com/BossBlunts1/status/1675201131088150528[/tweet]

RE: OT - BofA and Germany - French Rage - 07-02-2023

It's only a loss if they sell now. Unlike smaller banks, BAC should (in theory) have diverse enough of a deposit base and overall business that they don't need to be selling right now.

RE: OT - BofA and Germany - dabigv13 - 07-02-2023

(07-02-2023, 08:05 AM)OutsiderFan Wrote: PSA: Twitter no longer allows content to be seen by opening a link without logging in. So if you want people who don't have Twitter accounts to see what you are referring to on Twitter, you must embed tweets on this board like so:

This is how to embed a tweet.
Type like so, but deleting the asterisks I have included so that the code doesn't work:

[*tweet]tweet URL[/*tweet]

RE: OT - BofA and Germany - rogpodge - 07-02-2023

Thank you to the html coders. Will keep that in mind.

RE: OT - BofA and Germany - winflop - 07-03-2023

(07-02-2023, 10:23 AM)French Rage Wrote: It's only a loss if they sell now. Unlike smaller banks, BAC should (in theory) have diverse enough of a deposit base and overall business that they don't need to be selling right now.

That is not correct. All investments need to be adjusted to current market values on the balance sheet ("marked to market"), and federal regulators look at the market value of assets when assessing systemic risk. Any devaluation of this magnitude will materially impact their balance sheet and their systemic risk of failure

RE: OT - BofA and Germany - BigJohn043 - 07-03-2023

(07-03-2023, 06:58 AM)winflop Wrote:
(07-02-2023, 10:23 AM)French Rage Wrote: It's only a loss if they sell now. Unlike smaller banks, BAC should (in theory) have diverse enough of a deposit base and overall business that they don't need to be selling right now.

That is not correct. All investments need to be adjusted to current market values on the balance sheet ("marked to market"), and federal regulators look at the market value of assets when assessing systemic risk. Any devaluation of this magnitude will materially impact their balance sheet and their systemic risk of failure

Banks do not have to mark assets they plan to hold to market. This was one of the changes coming out of the GFC. It is true that regulators will look at market values.

FWIW, BofA is not in any kind of real trouble due to its balance sheet. For that matter, SVB wasn't either. Without the deposit run SVB would have easily been able to manage its way through the increase in interest rates.

RE: OT - BofA and Germany - Mick - 07-03-2023

(07-03-2023, 07:42 AM)BigJohn043 Wrote:
(07-03-2023, 06:58 AM)winflop Wrote:
(07-02-2023, 10:23 AM)French Rage Wrote: It's only a loss if they sell now. Unlike smaller banks, BAC should (in theory) have diverse enough of a deposit base and overall business that they don't need to be selling right now.

That is not correct. All investments need to be adjusted to current market values on the balance sheet ("marked to market"), and federal regulators look at the market value of assets when assessing systemic risk. Any devaluation of this magnitude will materially impact their balance sheet and their systemic risk of failure

Banks do not have to mark assets they plan to hold to market. This was one of the changes coming out of the GFC. It is true that regulators will look at market values.

FWIW, BofA is not in any kind of real trouble due to its balance sheet. For that matter, SVB wasn't either. Without the deposit run SVB would have easily been able to manage its way through the increase in interest rates.

Silicon Valley Bank's assets tripled from 2020 to 2022. They had too much liquidity, and not enough lending opportunities, so they locked up billions in 10-year T Bonds. When rates skyrocketed, the value of those bonds dropped like a rock...which, BTW, numerous internal risk officers at SVB noted as far back as 2019. At best, SVB sold $20 billion at a loss (really at market price) because they needed the case. The market noticed. And their depositers who had more than $250k in the bank were uninsured (Roku had $500 mms. in SVB), so $41 billion sprinted out of SVB in a single day. What SVB did -- make an enormous, unhedged bet on low interest rates -- was so wrong, and so scary, that other banks were hit with significant withdrawals.

RE: OT - BofA and Germany - winflop - 07-04-2023

(07-03-2023, 07:42 AM)BigJohn043 Wrote:
(07-03-2023, 06:58 AM)winflop Wrote:
(07-02-2023, 10:23 AM)French Rage Wrote: It's only a loss if they sell now. Unlike smaller banks, BAC should (in theory) have diverse enough of a deposit base and overall business that they don't need to be selling right now.

That is not correct. All investments need to be adjusted to current market values on the balance sheet ("marked to market"), and federal regulators look at the market value of assets when assessing systemic risk. Any devaluation of this magnitude will materially impact their balance sheet and their systemic risk of failure

Banks do not have to mark assets they plan to hold to market. This was one of the changes coming out of the GFC. It is true that regulators will look at market values.

FWIW, BofA is not in any kind of real trouble due to its balance sheet. For that matter, SVB wasn't either. Without the deposit run SVB would have easily been able to manage its way through the increase in interest rates.

ALL companies must mark their assets to market on their balance sheet. See FASB rule 157. Frequency is at least once per year at the end of the fiscal year, but many companies do it more frequently especially publicly-traded ones who often do it quarterly as part of their reporting requirements.

RE: OT - BofA and Germany - Mick - 07-04-2023

(07-04-2023, 07:21 AM)winflop Wrote:
(07-03-2023, 07:42 AM)BigJohn043 Wrote:
(07-03-2023, 06:58 AM)winflop Wrote:
(07-02-2023, 10:23 AM)French Rage Wrote: It's only a loss if they sell now. Unlike smaller banks, BAC should (in theory) have diverse enough of a deposit base and overall business that they don't need to be selling right now.

That is not correct. All investments need to be adjusted to current market values on the balance sheet ("marked to market"), and federal regulators look at the market value of assets when assessing systemic risk. Any devaluation of this magnitude will materially impact their balance sheet and their systemic risk of failure

Banks do not have to mark assets they plan to hold to market. This was one of the changes coming out of the GFC. It is true that regulators will look at market values.

FWIW, BofA is not in any kind of real trouble due to its balance sheet. For that matter, SVB wasn't either. Without the deposit run SVB would have easily been able to manage its way through the increase in interest rates.

ALL companies must mark their assets to market on their balance sheet. See FASB rule 157. Frequency is at least once per year at the end of the fiscal year, but many companies do it more frequently especially publicly-traded ones who often do it quarterly as part of their reporting requirements.

I believe that banks hold bonds in a "mixed meaurement model" consisting of two accounts:
(1) AFS or "Available For Sale". These are bonds that are available to be sold and must be valued at Mark-to-Market, per FASB 157.
(2) HTM or "Held to Maturity" (sometimes referred to as "Hide to Maturity"). These bonds, not available for sale, are held to maturity and are amortized instruments. The loss goes unrealized until the maturity date.

I think that dates from FASB decisions made in 2010. I used to work with Bob Herz at PwC. He was a partner at PwC, who became FASB's chair and was an absolute champion for market value. He resigned when FASB -- under political pressure -- retreated from Herz's proposal to require all financial instruments to be valued at market value on the balance sheet.

SVB had $91.3 billion in HTM financial instruments (43.1% of the balance sheet). Their fair value was only $76.2 billion -- $15.1 billion less than their carrying value. Had they marked to market, so to speak, it would have reduced the bank's equity to $1.2 billion (assuming no tax treatment). Even if SVB could have recouped a tax benefit, it would have still reduced book equity by $11.9 billion.

These links explain it better than I can. The first link lists the unrealized losses on a per-share basis for the large banks, including Citibank (16.7% of tangible book value), JP Morgan (17.1% of TBV), Wells Fargo (33.4%), and Bank of America (56.7% -- yikes)

Q1 Update For List Of Banks That Still Have Massive Unrealized Securities Losses | Seeking Alpha

The SVB Collapse: FASB Should Eliminate “Hide-‘Til-Maturity” Accounting | CFA Institute Market Integrity Insights

RE: OT - BofA and Germany - chrisk - 07-04-2023

(07-04-2023, 09:07 AM)Mick Wrote:
(07-04-2023, 07:21 AM)winflop Wrote:
(07-03-2023, 07:42 AM)BigJohn043 Wrote:
(07-03-2023, 06:58 AM)winflop Wrote:
(07-02-2023, 10:23 AM)French Rage Wrote: It's only a loss if they sell now. Unlike smaller banks, BAC should (in theory) have diverse enough of a deposit base and overall business that they don't need to be selling right now.

That is not correct. All investments need to be adjusted to current market values on the balance sheet ("marked to market"), and federal regulators look at the market value of assets when assessing systemic risk. Any devaluation of this magnitude will materially impact their balance sheet and their systemic risk of failure

Banks do not have to mark assets they plan to hold to market. This was one of the changes coming out of the GFC. It is true that regulators will look at market values.

FWIW, BofA is not in any kind of real trouble due to its balance sheet. For that matter, SVB wasn't either. Without the deposit run SVB would have easily been able to manage its way through the increase in interest rates.

ALL companies must mark their assets to market on their balance sheet. See FASB rule 157. Frequency is at least once per year at the end of the fiscal year, but many companies do it more frequently especially publicly-traded ones who often do it quarterly as part of their reporting requirements.

I believe that banks hold bonds in a "mixed meaurement model" consisting of two accounts:
(1) AFS or "Available For Sale". These are bonds that are available to be sold and must be valued at Mark-to-Market, per FASB 157.
(2) HTM or "Held to Maturity" (sometimes referred to as "Hide to Maturity"). These bonds, not available for sale, are held to maturity and are amortized instruments. The loss goes unrealized until the maturity date.

I think that dates from FASB decisions made in 2010. I used to work with Bob Herz at PwC. He was a partner at PwC, who became FASB's chair and was an absolute champion for market value. He resigned when FASB -- under political pressure -- retreated from Herz's proposal to require all financial instruments to be valued at market value on the balance sheet.

SVB had $91.3 billion in HTM financial instruments (43.1% of the balance sheet). Their fair value was only $76.2 billion -- $15.1 billion less than their carrying value. Had they marked to market, so to speak, it would have reduced the bank's equity to $1.2 billion (assuming no tax treatment). Even if SVB could have recouped a tax benefit, it would have still reduced book equity by $11.9 billion.

These links explain it better than I can. The first link lists the unrealized losses on a per-share basis for the large banks, including Citibank (16.7% of tangible book value), JP Morgan (17.1% of TBV), Wells Fargo (33.4%), and Bank of America (56.7% -- yikes)

Q1 Update For List Of Banks That Still Have Massive Unrealized Securities Losses | Seeking Alpha

The SVB Collapse: FASB Should Eliminate “Hide-‘Til-Maturity” Accounting | CFA Institute Market Integrity Insights

BofA pays nothing for its deposits. Their deposits increased by $15 billion after the collapse of SVB. They are still making a good margin on their HTM investments.

RE: OT - BofA and Germany - Blue Hawk (Mizzou) Card - 07-05-2023

A discussion of FASB on a sports fan website? Ya gotta love it.

As Yakiff Smirnoff (?) used to say, "What a country!" Or, as Toby Keith (iirc) sang, "I love this bar." Of course , if those references are incorrect, I am confident someone here will correct me. Goes with the territory.

Sometimes it is frustrating to be an overly passionate Stanford sports fan, because there so few of us and we tend to be so polite. But ya gotta love a sports fan website that hosts a debate about FASB.

RE: OT - BofA and Germany - washingtonismoney - 07-05-2023

Got to add another voice to the "no need to adjust", see for example this Bloomberg article from 2015: https://www.bloomberg.com/news/articles/2015-06-09/how-banks-using-accounting-shifts-to-prepare-for-an-interest-rate-rise?cmpid=BBD033123_oddlots&utm_medium=email&utm_source=newsletter&utm_term=230331&utm_campaign=oddlots&sref=gsU5KkcI

In any case BOA claims assets of $3.1 trillion; even if true a $100B loss is not terribly significant: https://www.macrotrends.net/stocks/charts/BAC/bank-of-america/total-assets

Also in the "even if true" category, collapse of the German central bank is also not terribly significant as the European Central Bank is the real monetary authority in the Eurozone and they could simply print euros to shore up the Bundesbank balance sheet. And German debt-to-GDP is around 60%, which is all things considered pretty low. If anything Germany should be taking on more debt as they need to shore up their very rickety infrastructure and transition their industrial base to a more green future.

RE: OT - BofA and Germany - Mick - 07-05-2023

(07-05-2023, 02:20 PM)washingtonismoney Wrote: BOA claims assets of $3.1 trillion; even if true a $100B loss is not terribly significant: https://www.macrotrends.net/stocks/charts/BAC/bank-of-america/total-assets

It's true, Bank of America does have $3.05 trillion of assets, but they also have 2.8 trillion in liabilities. Their net worth is $272 billion. So a $100 billion hit would be 36.8% of their net worth...quite substantial.

RE: OT - BofA and Germany - 82 Card - 07-06-2023

(07-05-2023, 02:48 PM)Mick Wrote:
(07-05-2023, 02:20 PM)washingtonismoney Wrote: BOA claims assets of $3.1 trillion; even if true a $100B loss is not terribly significant: https://www.macrotrends.net/stocks/charts/BAC/bank-of-america/total-assets

It's true, Bank of America does have $3.05 trillion of assets, but they also have 2.8 trillion in liabilities. Their net worth is $272 billion. So a $100 billion hit would be 36.8% of their net worth...quite substantial.

Not sure how those numbers relate to CET1 (total common equity ratio). As of August 2022, the FED required B of A to have a ratio of 10.4% (See: Large Bank Capital Requirements, August 2022 ).[url=https://www.federalreserve.gov/publications/files/large-bank-capital-requirements-20220804.pdf][/url]

Even if B of A is saved for now by accounting rules, seems like they are likely to face a need to raise additional capital if the trends continue, particularly if there is a sudden reversal of deposit flows to large banks.

RE: OT - BofA and Germany - rogpodge - 07-06-2023

And yet....

https://www.reuters.com/markets/us/bank-america-increases-dividend-by-9-after-fed-stress-test-2023-07-05/

RE: OT - BofA and Germany - 2006alum - 07-06-2023

(07-06-2023, 05:01 PM)rogpodge Wrote: And yet....

https://www.reuters.com/markets/us/bank-america-increases-dividend-by-9-after-fed-stress-test-2023-07-05/

Turns out you can't believe everything you see on Twitter.... Who'd a thunk?

RE: OT - BofA and Germany - 82 Card - 07-06-2023

(07-06-2023, 05:01 PM)rogpodge Wrote: And yet....

https://www.reuters.com/markets/us/bank-america-increases-dividend-by-9-after-fed-stress-test-2023-07-05/

Well, if unrealized losses don't count and the banks are raking in cash elsewhere by upping rates on loans while paying diddly on deposits, sure, why not. This stuff's so opaque and the banks and Fed folks are such good buds, anything is possible.

RE: OT - BofA and Germany - Mick - 11-27-2024

(07-06-2023, 03:57 PM)82 Card Wrote:
(07-05-2023, 02:48 PM)Mick Wrote:
(07-05-2023, 02:20 PM)washingtonismoney Wrote: BOA claims assets of $3.1 trillion; even if true a $100B loss is not terribly significant: https://www.macrotrends.net/stocks/charts/BAC/bank-of-america/total-assets

It's true, Bank of America does have $3.05 trillion of assets, but they also have 2.8 trillion in liabilities. Their net worth is $272 billion. So a $100 billion hit would be 36.8% of their net worth...quite substantial.

Not sure how those numbers relate to CET1 (total common equity ratio). As of August 2022, the FED required B of A to have a ratio of 10.4% (See: Large Bank Capital Requirements, August 2022 ).

Even if B of A is saved for now by accounting rules, seems like they are likely to face a need to raise additional capital if the trends continue, particularly if there is a sudden reversal of deposit flows to large banks.

You're prescient, 82 Card. BofA was just moved down a notch on the "too big to fail" list, dropping to category three on the Financial Stability Board (FSB -- not FASB) list.

Bank Of America Down A Notch On 'Too Big To Fail' List | Barron's

RE: OT - BofA and Germany - M T - 11-27-2024

(11-27-2024, 09:06 AM)Mick Wrote: You're prescient, 82 Card. BofA was just moved down a notch on the "too big to fail" list, dropping to category three on the Financial Stability Board (FSB -- not FASB) list.

Bank Of America Down A Notch On 'Too Big To Fail' List | Barron's

I do not like trying to figure out stuff from a news report rather than going to the source.
FSB 2024 List of Global Systemically Important Banks (G-SIBs)
It appears that the move from bucket 3 to bucket 2 (Mick stated "to category three" ??) reduces the FSB requirement for capital buffer
and maybe a reduction in the CET1 capital requirements.
But in
FRB 2024 Large Bank Capital Requirements
I can not understand the mapping from FSB's G-SIB buckets to the FRB G-SIB Surcharges.
As of 1-Oct, FRB G-SIB Surcharge was 3.0% for BofA, Goldman Sachs, and Morgan Stanley, while the FSB G-SIB buckets were 3 (before moving to bucket 2), 2, and 1 respectively.