NYT Dealbook: Bailed out banks cooking the books
The NYT reported that news that huge troubled banking institutions like Citi, Wells Fargo, Bank of America and JP Morgan who recently reported unexpectedly huge profits for the first quarter are merely engaging in creative accounting:
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.
Bank of America sold its shares in China Construction Bank to book a big one-time profit, but Ken Lewis heralded the results as “a testament to the value and breadth of the franchise.”
Sydney Finkelstein, the Steven Roth professor of management at the Tuck School of Business at Dartmouth College, also pointed out that Bank of America booked a $2.2 billion gain by increasing the value of Merrill Lynch’s assets it acquired last quarter to prices that were higher than Merrill kept them.
Indeed what has changed in the past few months is that those same bailed out banks have actually been reducing lending and needless to say this doesn’t help the economy:
According to a Wall Street Journal analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program.
Is there anything these low-down corporations won’t resort to dress up their balance sheets? The Geithner bank plan is clearly too generous to these corporations.