Wells Fargo records highest number of loss-making days in six years

On average, the eight top US banks reported 29 loss-making days in Q3

Wells Fargo incurred the highest number of loss-making trading days in the third quarter of 2021 across the top eight US banks. 

The San Francisco-based bank reported 43 losing days in the three months to end-September – the highest number for the bank since public disclosures began in Q1 2015. This was up from 38 in the previous quarter.

 

 

On aggregate, the eight US systemically important banks reported 228 losing days over the same period – around 29 each on average. This compares with 255 loss-making days in the second quarter and 227 in Q3 2020.

State Street posted the second highest number of trading days with a loss, at 36, ahead of Morgan Stanley’s 28 and Bank of America and BNY Mellon with 27 each.

Goldman Sachs reported the lowest number for the group, with just 20 loss-making days.

What is it?

US banks and intermediate holding companies subject to federal regulators’ market risk capital rule must record the total number of trading days each calendar quarter that they incur a trading gain and a trading loss in their FFIEC 102 reports, which are used to vet firms’ analyses of their market risks.      

Trading losses exclude fees, commissions, reserves, net interest income and intraday trading profit or loss.

Why it matters

As we predicted in August, calmer markets would eventually start to hit banks’ coffers. The third quarter was a case in point, with Wells Fargo amassing loss-making days and posting a 7% drop in total revenue.

From a regulatory perspective, however, what really matters is not the number of losing days, but the severity of the losses incurred on these days and whether they were accurately forecast by a bank’s market risk model.

For example, Wells Fargo reported no value-at-risk backtesting exceptions in the third quarter. And the actual losses-to-VAR ratio for its three largest losses averaged 34%, meaning the bank’s models performed as expected – something US regulators will be happy to see.

Different story for two other banks – Bank of America and BNY Mellon – which, despite posting fewer losing days than the group’s average, incurred one VAR breach each. This puts the firms one step closer to attracting a higher multiplier for their market risk capital requirement.

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