BofA CEO Brian Moynihan: Situational Awareness meltdown was warning shot

Bank of America CEO Brian Moynihan on Wednesday called the recent near-collapse of high-flying AI hedge fund Situational Awareness a warning shot for financial markets that are being fueled by elevated valuations and borrowed money.

Last week, Situational Awareness, led by Leopold Aschenbrenner, was forced to offload most of its public equities to Citadel in a fire sale as its bets on artificial intelligence soured. Bank of America was among the firm’s prime brokers, executing trades and providing leverage to the fund, along with Goldman Sachs and JPMorgan Chase.

“These are all warning shots,” Moynihan told CNBC’s Andrew Ross Sorkin. “Valuations get out, leverage in the system gets there. You have to be careful.”

Moynihan’s comments suggest Wall Street’s largest prime brokers are reexamining exposure to highly leveraged investment firms after the AI trade has fueled surging markets over the last several years, even as they continue competing aggressively to finance hedge funds.

“You always look and say, ‘OK, what happened? Should we learn from it? Should it change?'” Moynihan said. “And so the tendency is to tighten the underwriting standards, just a hair, to adjust — especially with big run-ups in stocks.”

Still, Bank of America would have been “fine” even absent the Citadel deal, which provided capital for Situational Awareness to pay off its banks, Moynihan said.