While digging into #BAC‘s Q4-23 financial statements, I couldn’t help but wonder if they had lost their minds during the last three months of 2023.
No, I am not referring to the “press release” or the “presentation,” which are usually prepared to “feed” the media rather than provide transparency to the shareholders.
Hidden in plain sight within #BAC‘s “real” financial statements PDF are some incredible golden eggs that the press predictably overlooked.
GOLDEN EGG #1 – In Q4, #BAC‘s net increase of provisions for Credit Losses related to Commercial Real Estate was….. ZERO!!
Please examine the highlighted part in Picture 1. As you can see, the amount of allowances for credit losses related to Commercial Real Estate DECREASED from 1,393m in Q3-23 to 1,342m in Q4.
Seemingly unbelievable, right? Has nobody at #BAC read the #WSJ, #CNBC, or at least the Onion reports about shopping malls and office buildings being dumped at a 50-75% loss in the US? Well, even if they haven’t, their accountant should have a chat with their own credit risk department. Why?
GOLDEN EGG #2 – While #BAC doesn’t expect an increase in #CRE losses, they reported a 43% increase of Non-Performing Loans for their #CRE exposure. [Picture 2]
GOLDEN EGG #3 – While EVERY category of Non-Performing Loans balances increased from Q3 to Q4, and all other banks that reported last Friday INCREASED their allowance for credit losses from Q3 to Q4, #BAC‘s total allowance for credit losses DECREASED to 1,104m in Q4 from 1,253m in Q3.
Consistent with its view of an (Ultra) “Soft Landing” ahead, it should surprise no one that BAC placed a big bet in Q4.
GOLDEN EGG #4 – In Q4, #BAC bought 74.4bn more of US Treasuries! [Picture 3]
So effectively, despite 100bn+ of “paper losses” already spread between its Available For Sale and Hold To Maturity books, #BAC “doubled down” betting rates have peaked and increased its overall exposure to US Treasuries to 300bn (cost basis) or +25% vs Q3.
Oh dear, in which direction did rates go so far in 2024? I believe now you understand why I see no chance the #FED will let the #BTFP expire in March (otherwise #BAC “paper losses” will instantly become frightful “losses”).
Conclusion
As we discussed above, while #BAC clearly perceives absolutely no risk in the credit market with only ~14bn of total allowances for credit losses in balance sheet against ~1.65T of total credit risk (both consumer and commercial segments, including committed but not disbursed corporate credit lines), bankruptcy filings keep increasing with Chapter 11 in the US 76% higher in 2023 than 2022 and expected to continue rising in 2024 [Reuters – Picture 4].
The bank is clearly betting big that the #FED will deliver a great soft landing that will “wash” away both credit risk and “paper losses” resulting from the increase in rates and weakening economy. However, if the #FED fails #BAC shareholders better be ready for many surprises from a balance sheet that so far is screaming “everything is awesome” while the current reality isn’t really reflecting that.
