Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Bank of America Was Actually More Pessimistic Than The Fed

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One of the repeating themes of the Federal Reserve's stress test is that the banks generally had far more optimistic views about their risks than the regulators. JPMorgan Chase was the worst offender on this score, as Cardiff Garcia of FT Alphaville points out.

"The Fed predicts that JPMorgan would record a cumulative net loss of $32.3 (billion) in the nine quarters from Q4 2012 through Q4 2014 inclusive. JPMorgan's own estimate is that it would lose $200 (million), creating the single biggest divergence between Fed and any one bank,'" Garcia points out.

That's a jaw dropping gap between the regulators and the bankers. But you find similar, if smaller, divides all over the report. Banks come in higher on revenues and lower on losses in almost every category.

Which is what makes what happened with Bank of America's trading losses so odd.

Bank of America alone apparently was too pessimistic about its trading losses. Or, at least, more pessimistic than the folks at the Fed.

Bank of America estimated that it would record a cumulative net trading loss of $19.7 billion in the nine quarters from the fourth quarter of 2012 through the fourth quarter of 2014. The Fed basically came up and patted Bank of America on the back.

"Cheer up, guy. It's not so bad," I imagine the Fed saying.

The Fed's loss estimate for Bank of America is just $14.1 billion.

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