BofA: Credit-Loss Provisions Increase Sharply
Submitted by
CalculatedRisk on Mon, 07/21/2008 - 5:35am (26 comments)
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It was the best of times, it was the ... "blurst" of times!
What?
Why, you stupid monkey.
Listen to what Nouriel Roubini says the big banks are doing to manipulate earnings.
This earnings manipulation occurs in a variety of ways. First, ad hoc assumptions still used to value and write down level 2 and level 3 assets. Second, banks are leaving aside less reserves for loan losses that are much less than necessary; they do that by using ad hoc assumptions about future losses on mortgages, credit cards, auto loans, student loans, home equity loans and other commercial real estate loans and industrial and commercial loans. Reserves for loan losses have been sharply lagging actual and expected losses, thus padding earnings as decided by the financial institutions' managers. Third, there is disposal of illiquid and toxic assets in ways that misleadingly reduces the amount of actual writedowns. An example is as follows: suppose a bank wants to dump illiquid MBS or leveraged loans that are worth mark to market 70 cents on the dollar rather than 100 cents on the dollar. Then, instead of selling these at a price of 70 and showing a 30% writedown these are sold to hedge funds and other investors to a price closer to par and thus showing in the balance sheet a smaller writedown by providing a subsidy to the buyer of the security: so a hedge fund will buy such toxic securities at 80 or 90 cents and receive a loan to finance the transaction at an interest well below the borrowing costs for the funds. Thus, writedowns are then shown smaller than the true underlying loss on the asset and the bank finances that fudged transaction with earning less revenues than otherwise on its credit portfolio. This is an accounting scam- bordering on the criminal - that auditors and regulators are abetting on a regular basis.
the market is viewing as positive these results, once again feeling that this might be the bottom. Unemployment is increasing, the effects of the late spring move in oil prices are just beginning to filter through, and credit standards continue to tighten.
Bottom? We're still getting started.
The longer you delay the inevitable the...bigger the final price becomes.
After this is all over bankers will be about as popular as child molesters.
The apes are sitting in the trees...laughing their asses off at us.
Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored conditions. They know only the rules of a generation of self-seekers.
They have no vision, and when there is no vision the people perish.
The money changers have fled their high seats in the temple of our civilization. We may now restore that temple to the ancient truths.
FDR - 1933
08Q3 - $B writedown - stock goes up
08Q4 - $B writedown - stock goes up
09Q1 - $B writedown - stock goes up
09Q2 - $B writedown - stock goes up
...
BAC $100 in a year.
I thought the US taxpayer took care of this kind of thing.
How's a destructive incompetent financier to make a living and maintain his high status in the world if someone's not there to bail him out when his actions result in massive losses?
We need heavy government intervention to make sure we preserve these practices that lead to the kind of spectacular failures that define who we are as a nation.
Since banks earnings are strongly tied to how they value their holdings, it seems like banks can come up with any number they want. Within reason, of course.
Finally, in our progress toward a resumption of work we require two safeguards against a return of the evils of the old order: there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people's money, and there must be provision for an adequate but sound currency.
FDR - 1933
randy,
Greasy hair Sheila Bair and her army of bank examiners know all about that and yet she continues to remind depositors their money is safe and not one 'insured' depositor has lost a penny since 1933. The FDIC has a media push with numerous articles in the local newspapers to calm depositor fears. Here is a sample:
Worried about your money after IndyMac's failure? Don't be |
News for Dallas, Texas | Dallas Morning News
| Pamela Yip | Personal Finance | Business Columnist | Dallas Morning News
I think they've got it all wrong. Yur supposed to report desperate losses so that the Fed will avail. Common guys, get with the program, thar's a free lunch a wastin'.
...Ahem, morals aside, of course.
This weekend I had to spend lots of time on a plane and ended up reading book by John C Bogle on the stockmarket, "Battle for the Soul of Capitalism". It seemed the thesis of the book was "over the long run we are due for a huge correction since American companies are managed in such a non-transparent manner and Wall Street sets value of stocks on short-term fluctations of price rather than long term growth potential."
Who wants to own stocks or mutual funds in this environment?! "Hey, we lost money... but not as much as we thought we would!"
YLSP -"Hey, we lost money... but not as much as we thought we would!"
That says it all!
I would like to make a few million a year to lose a few billion for shareholders.
and we're in charge of the initial thinking to ensure we don't lose as much as we thought we would!
I really should have read the menu more carefully at Milliway's - I think it would have helped my tenses up there.
This does not include Countrywide's results.
Countrywide? What's Countrywide? There is no Countrywide only Zuul, errr.. Bank of America.
They are all Countrywide now.
FWIW, Countrywide lost $2.33B, which would knock the total earnings down to about 23 cents/share.
Next? National City is offering a 5.05% CD!
With all these "Better than expected" results, one would expect the DOW to hit at least 12K and the S&P 1300, otherwise it's going to be really really bad going forward.
Anyone got any info on the FED's clearinghouse for derivatives? Please give us an update if you got news.
Every time something happens, they plug a hole and two new holes open up,'' says Nouriel Roubini, a former Treasury official who is chairman of Roubini Global Economics in New York.What they need is a systematic plan on how to approach this mess.''
Bernanke, Paulson Pressed to Seek Big-Government Bank Bailout - Bloomberg.com
Conjure says, "Nouriel, I respectfully suggest that leadership is what's needed to develop a "systematic plan," but it isn't going to happen."
Meanwhile, Rome burns.
Rome had no choice but to burn. It was time to make room for new growth.
As it was then, so it shall be again....only on a slightly larger scale.
We are the Indians!
I just went to the FDIC site and after a lot of misery searching found more detailed data on bank capital ratios. What I found surprised me somewhat since in fact most banks, including C and WB and others are in better shape than people think. They rank as "well capitalized" as of March 31st, in any case. If I'da node this BEFORE the recent panic I'da loaded up. Now it's a bit late to get them at their low point. They've gone up quite a bit. One can always hope however for another spell of panic.
Comment should've been something like, "We're all Native Americans now..." (and not southest Asian Indians) although I bet the living tribes don't have nearly the amount of debt that America has...
According to Bloomberg's story on BAC's earnings, net charge-offs increased by 33% from the prior quarter while provisions for credit losses actually declined 3% from the prior quarter. Any thoughts on this inconsistency? Seems like another great way to make earnings look better - not increasing provisions for credit losses.
Hey in the last month they sent me 2 letters and several emails begging me to borrow some $.
Soo must be a MSM effort to panic folks.