Use access key #2 to skip to page content.

alstry (< 20)

WOW!!!! Is it over?



May 19, 2008 – Comments (1)

Banks Keep $35 Billion Markdown Off Income Statements (Update1)

By Yalman Onaran

May 19 (Bloomberg) -- Banks and securities firms, reeling from record losses resulting from the collapse of the mortgage securities market, are failing to acknowledge in their income statements at least $35 billion of additional writedowns included in their balance sheets, regulatory filings show.

Citigroup Inc. subtracted $2 billion from equity for the declining value of home-loan bonds in its quarterly report to the Securities and Exchange Commission on May 2 without mentioning the deduction in the earnings statement or conference call with investors that followed. ING Groep NV placed 3.6 billion euros ($5.6 billion) of negative valuations in its capital account, while disclosing only an 80 million-euro depletion to income.

The balance-sheet adjustments are in addition to $344 billion of writedowns and credit losses already reported on the income statements of more than 100 banks. These companies have raised $263 billion from sovereign wealth funds, their own governments and public investors to shore up capital. The balance-sheet writedowns also reduce equity, which needs to be replenished. Adding the $35 billion leaves the banks with a $116 billion mountain of losses to climb.

My friends, over the past couple years analyzing HBs, I thought the junk I was reviewing was some of the worst open violations I have ever seen.

But nothing like this, and nothing on this scale.  From this perspective, we are now heading down a path of no return.  Clearly, little regard is now being paid to accounting transparency and clarity.  Without integrity and consistency in the numbers, there will be no way to competently value U.S. public corporations.

I have repeatedly sounded off on SPF because it was such a clear example that I could support with facts.  It is now obvious many play in this room.  It seems that the SEC is turning a blind eye.  Without enforcement, there is an incentive to lie.

If banks are lying, how do we know our savings are safe?  How do we know that the companies that report earnings are really making money?  How do we know that one morning we don't wake up and the market crashes to nothing?

If nothing is done soon......soon it will be done!!!!!




1 Comments – Post Your Own

#1) On May 19, 2008 at 11:32 PM, alstry (< 20) wrote:

``The banks that have taken advantage of this accounting approach are going to have a price to pay later,'' said Hintz, the third-highest ranked securities analyst in an Institutional Investor magazine survey. ``You don't avoid the price. Those that have taken it all in their income statements will come out with clean balance sheets and move on.''

Ignoring bad debt and postponing inevitable losses was one of the main reasons behind Japan's decade-long economic slump that began in the 1990s, said Boston University law professor Charles Whitehead.

Faced with new capital requirements and a weakened ability to meet them, Japanese banks deferred the recognition of their losses, aided by regulators who refrained from implementing the rules, Whitehead wrote in a 2006 paper published in the Michigan Journal of International Law.

``U.S. regulators may be tempted to go soft on banks too,'' said Whitehead, who teaches securities regulation, in an interview. ``The new capital rules already rely significantly on self-modeling by the banks. So if anything, the risks may be greater in the U.S. today than they were in Japan in the 1990s.''

Report this comment

Featured Broker Partners