Fitch explains that for large US banks “the sharp rise in interest rates across the curve led to unrealised losses in AFS (Available-for-Sale) securities portfolios with an estimated negative effect on CET1 ratios of 20-110bp”.
Specifically, according to Bloomberg, JPMorgan reported latent losses of about USD 7.4 billion on a total of USD 313 billion of Treasuries and other bonds in its available-for-sale portfolio in the Q1’22 results announced last week. These “were responsible for much of the drop in JPMorgan’s regulatory capital ratio in Q1, from 13.1% to 11.9% at the end of March”, which also led to a slowdown in its share buyback programme.
However, according to the same Bloomberg report, “BofA recorded roughly half the losses that JPMorgan suffered on a similar-sized portfolio because BofA has been regularly hedging the risk of rate hikes since 2020.”
Bloomberg also notes that Wells Fargo reported about USD 5 billion in latent losses associated with its bond holdings, Citigroup about USD 4.3 billion and Bank of America about USD 3.4 billion.
