Tomahawk, WI 12/02/2013 (BasicsMedia) – Bank of America Corp (NYSE:BAC) leads three of the U.S. big lenders in rolling back from Fed Treasuries and bonds. The bank has been reducing its holding of the government debts this year as the investment seems to be lackluster. Other big lenders doing this include Citigroup Inc (NYSE:C) and Wells Fargo & Co (NYSE:WFC). These are the three of the four banks including JPMorgan and Chase (JPM) which account for about 60% of the total assets in the banking sector in the U.S.

Looking at the Bank of America Corp (NYSE:BAC) holding of the bonds, the company has cut its investment more than 88% this year alone, leaving it with $2.97 billion in government debt stake. This signifies the biggest drop in debt holding by the bank in multiple years. And even as other banks may not be this fast in reducing their holding of the Fed debts, the theme cuts across the industry.

Other lenders reducing debt stake

The reason Bank of America Corp (NYSE:BAC) is reducing its stake in the government debt is due to the unrealized loss that it suffered from the investment. The bank made losses in the two of the past three years of its holding on the bonds.

The same fate befell Wells Fargo that incurred $460 million in losses in government debt holding. Following the unrealized loss, the bank has been trimming its hold of the Treasuries this year despite having increased its stake last year to more than $7 billion.

As for Citigroup, the financial institution by Sept. 30, had decreased its holding of government debt by 10%. The New York-based lender now holds about $82 billion in Treasuries but it’s in the mode of reducing its hold.

Reason banks are recoiling

Buying government debt used to be a safe and good return investment for banks. But the story is no longer the same. Return margins from Treasuries seem too marginal to impress banks which are so desperate to not only recover from the financial crisis of 2008-9, but also seeking to avoid anything that could precipitate a reversal or even slow down their growth. Bank of America Corp (NYSE:BAC) in particular is finding benefits from holding Treasuries quite small that it seeks for alternatives. The alternative is to increase loan selling to its customers.

The rising interest rate is giving banks good profits in loan transactions and this is what is pulling BAC into the business.

The fact that customers in the larger banks have increased their deposits means that banks like Bank of America Corp (NYSE:BAC) are having excess cash which they need to put into good use. This is why cash and asset backed securities look appealing for banks than holding Fed debts.

Panic over tapering

Bank of America Corp (NYSE:BAC), just like the other big players in the U.S. financial market is wary over the impact of government tapering. This panic has set in motion the desire to reduce stake in government debts and this is gaining currency among the big lenders as well as other funds. Essentially, it seems every institution wants to save the dollar of their investors by abandoning the ship before the waves of the sea cause havoc.

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