https://www.thestreet.com/markets/j...ed-by-veiled-losses-on-bond-holdings-14748752
Bank of America and Citigroup are the only ones who disclose the market losses clearly, on an after-tax basis, so that they're comparable to net income; Wells Fargo only discloses the losses on a pre-tax basis. JPMorgan doesn't break them out at all, until several weeks later, when the bank files its quarterly report with the Securities and Exchange Commission. (In other words, the losses are so serious -- and real -- that the banks might get in trouble with regulators if they
didn't disclose them in SEC filings.)
Under the accounting rules, the banks aren't required to deduct the bond losses from net income. That helps executives report higher headline profits, while giving Wall Street analysts and traders something to cheer about.
But the losses are deducted from "common-equity capital" -- the extra money that regulators require banks to keep on hand to withstand a big economic downturn. The common-equity capital is also used to support new loans or make payouts to shareholders in the form of dividends or stock buybacks.
The deductions are crucial because, as most sophisticated investors know, bank stocks are rarely valued as a multiple of earnings, but as a multiple of common equity. Under the accounting jargon, the losses on the bond portfolios -- usually called "available-for-sale securities" -- are recorded in an account known as "other comprehensive income," or OCI.
It's a tangle of technical terms to describe a simple concept: The banks are losing money on their giant bond holdings.
