The country’s four biggest banks are sitting on $157 billion of mortgage-backed securities they’ve marked as available for sale.
By Jenny Surane and Hannah LevittHigher interest rates helped Wells Fargo & Co. land more than $3 billion in profit in the third quarter. From a capital perspective, they also wiped out nearly three-quarters of that.
“When it comes to managing capital, we should be extremely conscious of what the risks are that are around us,” Wells Fargo Chief Executive Officer Charlie Scharf warned last month, citing swings in the value of the bank’s investment portfolio as well as geopolitical risks. “Those are all reasons, given where we sit today, to be more conservative on capital rather than less conservative.”
“The banks, in general, are taking the necessary actions to maintain sound financial profiles amid a deteriorating economic backdrop despite these headwinds,” Julie Solar, who tracks North American financial institutions at Fitch Ratings, said in an interview. Still, she said, it’s likely “share repurchases will be curtailed or continue to be suspended as the banks meet their capital requirements.
“What’s a little bit different is how quickly this has occurred, how quickly you’ve seen banks react to it and the utilization of held-to-maturity much more actively,” said Greg Hertrich, head of US depository strategies at Nomura. “They were prepared for it, and when the market moved as quickly as it has, they were able to pivot.”
At JPMorgan, unrealized losses on mortgage-backed securities in the available-for-sale portfolio reached $7.4 billion in the most recent quarter. That’s after the firm transferred $73.2 billion of investment securities from available-for-sale to held-to-maturity in the second quarter, citing capital management as the reason.
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