Google+ Followers

Thursday, 3 November 2011

US Bank profits are 'poor quality' - Bloomberg

Profits announced by the big US banks are phony. A laundry list of tainted supposed profits came in the last two weeks for the entire crew of giant insolvent US banks. The Debt Value Adjustment (DVA) deception is the main common thread of deception.
JPMorgan is a wreck, their businesses are tanking. Their tight grip on the Silver market could be loosened in time which would help to bring an end to the price fixing and allow Silver to rise to its true value.
The accounting fraud committed by JPMorgan is typical. Instead of taking a loss on their own declining corporate bonds, or doing nothing, they posted a queer profit in a Debt Value Adjustment of $1.9 billion, equal to 29 cents per share. The JPM bond yield spread has widened by 200 basis points versus the USTreasury Bond. The bank colossus paid out $1 billion in legal expenses for bond investor lawsuits. They raided $96 million from Loan Loss Reserves, which will be needed later, like in bond fraud investor settlements. They cut 1100 in bank staff. They posted a $700 million decline in investment banking profit. Their biggest line item of profit was the fiction of a $1.9 billion profit from their decaying corporate bonds.

It is not a profit & loss event at all. If they default on the corporate bond, imagine the accounting profit could be maximized. Only in American bank accounting, blessed as good by the Financial Accounting Standards Board and the US Congress.

Citigroup posted $1.9 billion in Debt Value Adjustments, the same amount JPMorgan posted for DVA in a parade. This item is so corrupt as to be indefensible by any rational person. They take the fallen value of their own corporate debt, cite how they could buy it back at a lower cost, and book the difference as profit. But the debt is not bought back, only pretended. Similar games are played with bond spreads widening, but keep the argument simple. Imagine a corporate bond rising in principal, but not as fast as USTBonds, booked as a profit since the spread has worsened. So if the corporate bond fails altogether and goes to zero, the DVA would maximize the profit for the dead firm. In my book, dead firms do not buy back their debt. A statistical analyst always prefers to carry an argument or method to the extreme to reveal its legitimacy or flaw.

Bank of America also posted a $1.7 billion DVA profit, but the winner was Morgan Stanley, which has the highest risk of death. They posted a hefty $3.4 billion fictional profit from a non-event adjustment to their corporate debt, the same Debt Value Adjustment.

Without such tainted profits, the big US banks would have shown their dead decaying matter more clearly. Worse, during a time when mortgage assets and lawsuits are all the rage, they raided their Loan Loss Reserves, more phony profits. Bank of America even listed litigation losses while raiding Loan Loss Reserves in the amount of $1.6 billion. Citigroup snatched back $1.4 billion, while Wells Fargo snatched back $0.8 billion. The big US bank quarterly reports were worse than dreadful, as they were corrupted and phony, the rot visible. 

Amazingly, the Bloomberg financial news identified the practice as questionable but legal, calling them 'poor quality profits'. Poor quality indeed. They are too kind.