No. of Recommendations: 1
'' Bank of America's supporters on Wall Street say the bank's bond losses are offset by the rising value of its huge, low-cost deposit franchise of $1.9 trillion, including $1.4 trillion of retail deposits. Banks generally don't put a value on their deposit franchise, but deposits are worth more as rates rise. Having 1% deposits is more valuable in a 4% rate world than in a 1% world.
Bank of America isn't under pressure to sell any of those securities'sales would cause it to realize the losses'given its enormous liquidity. But they will weigh on its returns for years, particularly if the bank is forced to pay more than its current 1% for deposits. 'These are money-good securities and there is no reason to sell them,' says Wells Fargo banking analyst Michael Mayo.
KBW analyst David Konrad wrote on Friday that the Fed 'may begin to more closely look at held-to-maturity losses when addressing capital returns for banks.' That might not be good for Bank of America. The bank declined to comment.
For investors, it pays to stick with quality, and JPMorgan remains a standout. 'JPMorgan is a big beneficiary of the current environment,' Goldberg says. 'It's the gold standard in the industry and has a fortress balance sheet. Customers increasingly will pay for a bank with a fortress balance sheet.'
