Finally, the 10-Q of Bank of America has been filed, and it is now time to check how things look in reality beyond the cheerful and "everything is awesome" press release and management call of a few weeks ago when the bank, as expected, beat market expectations (TODAY "EVERYTHING WILL BE AWESOME" FOR BANK OF AMERICA).

As you can understand from the title I chose for this article, Bank of America's problems are growing, not the opposite. However, I have to admit, at first glance, the numbers looked in better shape until an item usually not that relevant stood out: repurchase agreements.

How do repurchase agreements (aka REPOs) work? In a nutshell, these instruments are generally used by financial institutions to lend or borrow money in the very short term. Usually, the net amounts of money lent and borrowed are fairly the same, and a bank tends to make money using its better credit standing to borrow at a lower rate to then lend at a slightly higher rate to weaker counterparties. The rate is "slightly" higher because REPO operations are always collateralized and often with high-quality government or corporate securities. The typical warning sign of something going wrong with a bank, in particular with its liquidity positions, is when the net amounts borrowed through REPO operations are unusually high. Please take a look at the table below where I aggregated the REPO operation amounts reported by Bank of America in the past 4 quarters.

Shocking, isn't it? The amount of liquidity Bank of America borrowed from the REPO market has been DOUBLING in the past 3 quarters to reach a staggering 60 billion USD net balance. How many MSM or Wall Street analysts did you hear flagging this "small" detail? ZERO.

Furthermore, Bank of America isn't just using REPO agreements to transfer assets off its books and fetch liquidity. As you can read in their own disclosure below, they are doing the same through derivatives using assets that are hard to pledge in the REPO market like non-US Agency MBS.

Transfers of Financial Assets with Risk Retained through Derivatives