Magic Bank Profits

“Although perfectly legal, this move is also perfectly delusional, because some day soon these assets will be written down to their fair value, and it won’t be pretty.”

-Steven Roth, professor of management at the Tuck School of Business at Dartmouth College, on Bank of America’s earnings fraud

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We been discussing how many of the recent profits were not “real” — i.e., based on one time sleights of hands — losing a losing month, AIG flow throughs, bailout monies, etc.

Thus, it is gratifying to see on the front page of the NYT Business section, Andrew Ross Sorkin’s article with the provocative but accurate title, Bank Profits Appear Out of Thin Air.

The quote above comes via this same article. It refers to Bank of America’s fraudulent earnings scheme of booking a $2.2 billion gain that falsely increases value of the  Merrill Lynch’s assets recently acquired. BofA decided to give themselves a phony profit bump by raising the value of Merrill assets to prices significantly higher than Merrill kept them.

The banksters who have emptied the US Treasury of its money continue the same games of accounting sleight of hand, finacial engineering, and other tricks of the trade that helped caudse the mewltdown in the first place.

Instead of recievership and liquidation, we rewarded these cretins with your grandchildren’s lunch money.It is idiocy on a grand scale, beyond my feeble imagination.

Excerpt:

“Another day, another attempt by a Wall Street bank to pull a bunny out of the hat, showing off an earnings report that it hopes will elicit oohs and aahs from the market. Goldman Sachs, JPMorgan Chase, Citigroup and, on Monday, Bank of America all tried to wow their audiences with what appeared to be — presto! — better-than-expected numbers.

But in each case, investors spotted the attempts at sleight of hand, and didn’t buy it for a second.

With Goldman Sachs, the disappearing month of December didn’t quite disappear (it changed its reporting calendar, effectively erasing the impact of a $1.5 billion loss that month); JPMorgan Chase reported a dazzling profit partly because the price of its bonds dropped (theoretically, they could retire them and buy them back at a cheaper price; that’s sort of like saying you’re richer because the value of your home has dropped); Citigroup pulled the same trick.”

But it wasn’t only the banksters at BofA pulling this nonsense; All the cool kids were doing it:

• Goldman Sachs and the disappearing month of December
• JPMorgan’s profit was due to repricing the value of its falling bonds
• Citigroup also used the bond trick.

At least investors are no longer being fooled by these shenanigans. Bank of America’s stock plunged 24% yesterday in reaction to the fraud.

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Source:
Bank Profits Appear Out of Thin Air
ANDREW ROSS SORKIN
NYT, April 20, 2009
http://www.nytimes.com/2009/04/21/business/21sorkin.html

See also:
Citigroup’s Shareholders Wondering When Treasury Ousts Board
Ian Katz and Bradley Keoun
Bloomberg, April 21 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=aID_zRZJmmqQ&