Bank of America’s Shares Take a Hit as Big Banks Are on the Edge, Feeling the Heat from Treasury-Market Rout
Bank of America’s shares have dropped approximately 14% this year, providing further evidence of the financial crisis that is brewing. According to Moody’s, big banks are facing astounding unrealized losses that have reached $650 billion. The turmoil caused by the bankruptcy of Silicon Valley Bank in March is a sign that Wall Street is in for more chaos.
Could the crashing bond prices provoke another financial crisis? Here’s what you need to understand.
Unrealized Losses
The surge of anxiety among investors surrounding increasing interest rates and the US government’s massive deficit has resulted in a nightmarish performance for Treasury bonds since the pandemic began. This has led to substantial paper losses for the biggest banks in the US.
Last month, Moody’s reported that US financial institutions were facing unrealized losses of around $650 billion, which has only worsened in a tough October. The evidence is clear that big financial institutions are not safe from the turmoil that Silicon Valley Bank experienced earlier this year.
Another SVB-Style Crisis?
Wall Street doom-mongers are expressing concern that higher government bond losses and the crash in bond prices are indicating a possible crisis.
It’s important to note that while Bank of America has disclosed a potential $130 billion paper loss, it is yet unrealized. Despite this, concerns linger that the ongoing Treasury-market rout will continue to affect their stock prices.
Banks under Pressure
Indeed, the unrealized losses seem to be taking their toll on the big four banks, with their stock prices suffering, particularly for Bank of America, which has seen a 24% drop over the past year.
Despite the gloomy outlook, some analysts believe that the worst of the Treasury-market rout may be behind us, with the Federal Reserve signaling the end of a tightening campaign.
Unrealized losses are a source of concern for the biggest names on Wall Street, and they may loom large should the current downward trend in bank stocks continue.
