The surge in interest rates is impacting the performance of the US banking industry, with billions of dollars in long-term debt becoming a burden.

In the past few years, Bank of America's CEO Brian Moynihan has been telling investors that once the Federal Reserve raises interest rates, Bank of America will be the big winner because it holds a large amount of deposits and can profit from higher interest rates.

However, now that the Federal Reserve has indeed raised interest rates, even to a rare and aggressive level in decades, Bank of America has become the laggard among the major US banks. Last Tuesday, its stock price hit a nearly three-year low, and although it rebounded slightly for three consecutive days afterwards, by last Friday, its stock price had fallen more than 20% since the beginning of the year, with an almost 8% drop in the past month.

The media pointed out that Bank of America's underperformance is partly due to its investment of billions of dollars in long-term US Treasury bonds and mortgage-backed securities during the low interest rate period after the outbreak of the COVID-19 pandemic. Bank of America bought long-term bonds when the interest rate was around 2.4% a few years ago, and now it is facing the prospect of a 5.0% yield on long-term US bonds.

According to insiders cited by the media, the decision to buy long-term bonds is still a focus of internal blame within Bank of America, as the bond holdings have incurred significant unrealized losses, causing Bank of America to miss out on some of the best interest rate opportunities since 2007.

Scott Siefers, a senior research analyst at Piper Sandler & Co., commented that long-term securities are tied-up funds, and if they were not tied up in these securities, these funds could have been put to more effective use. This is one of the reasons for Bank of America's poor stock performance, as it has been more heavily burdened by past decisions compared to other banks.

The media pointed out that all major banks have been hit by their bond holdings, but Bank of America's holdings are particularly large, and the impact is more pronounced. Among the four major US banks, Bank of America has the largest securities investment portfolio and the lowest yield, and it is concentrated in bonds that mature in ten years. If the Federal Reserve continues to raise interest rates, the value of Bank of America's holdings of these bonds may shrink again.

Bank of America is scheduled to release its third-quarter earnings report on October 17th. Currently, Wall Street's performance expectations for Bank of America are lower than for other major banks. It is expected that Bank of America's net interest income in the third quarter will increase by 2.7%, which is lower than the growth rates of other major banks. The market expects JPMorgan Chase, Wells Fargo, and Citigroup to have net interest income growth rates of 27.5%, 5.5%, and 3.7%, respectively.

However, Wall Street expects Bank of America's floating losses to not actually result in losses, after all, Bank of America has over $3 trillion in assets and $1.9 trillion in deposits, and it is not in a hurry to sell bonds and can afford to wait.

Analyst Erika Najarian from UBS released a report on Monday stating that a significant rise in interest rates means that the bond investment portfolio will once again suppress Bank of America's ability to increase its capital ratio in the third quarter. And given that Bank of America's stock has already been oversold, when investors start focusing on credit and capital instead of looking back at bond investment losses and increased deposit costs, Bank of America's performance will outperform the market.

This Friday, JPMorgan Chase, Citigroup, Wells Fargo, and other banks will officially kick off the third-quarter earnings season. The market is closely watching the impact of high interest rates on banks' profitability (credit demand, net interest margin, etc.).

An article from Wall Street News pointed out that in a sustained high interest rate environment, both higher financing costs and reducing balance sheets by selling assets will impact banks' profitability. Not only banks, but also the recent survey shows that the high interest rates are increasingly worrying the market about the overall performance of the US stock market in the new round of earnings season. According to data from FactSet, analysts generally expect that the overall profits of S&P 500 constituent companies will decline by 0.3% YoY in the third quarter, marking the fourth consecutive quarter of decline.

According to real-time survey data from the media market on Monday, out of 567 respondents, 80% expressed concerns that the tightening of US consumer spending may impact corporate profits. They believe that caution should be exercised in dealing with the earnings level of S&P 500 constituent companies this quarter, and the prospects for consumer-related industries are dim, which will have a negative impact on the S&P 500.