Banks Show Big Profits From New Accounting Move
November 9th, 2011 Filed under: Accounting companies — Accounting Author
Banks have just GOT to be the most hated companies in the stock market and around the world. Here’s even more amo for you bank haters. Apparently they’ve been playing around with some accounting practices to make their books look better (and it’s all legal too). Pretty interesting stuff:
Look under the hood of bank earnings releases and youll see the banks are booking outsized paper gains in the third quarter from an accounting trick thats legitimate under current rules.
Without the move, some of the big banks — Citigroup (C), Morgan Stanley (MS) and JPMorgan Chase (JPM) — would have missed their third-quarter consensus earnings estimates.
In fact, 54% of the profits for four banks — Bank of America, Citigroup, JPMorgan and Morgan Stanley — came from this accounting maneuver.
Citigroup was able to book a profit, even though its revenue fell when you take out its paper gains from the move.
Bank of America reported a nice $6.2 billion profit for the third quarter — but 27% of that profit, or $1.7 billion, came from the paper gains resulting from this accounting move. The beleaguered bank told investors it beat analysts earnings estimates. It said it had 56 cents a share in profit. But strip out the paper profits from this accounting move and BofA earns 44 cents a share.
Citigroup said it beat analysts consensus estimates as well, with $1.23 earnings per share. Not so fast — take out the $1.9 billion it said it got from this accounting trick and it misses analysts estimates of 81 cents a share, with a lower 64-cents-a-share result.
Theres more. Goldman Sachs 84-cents-a-share loss turns into a deeper $1.66 loss. Analysts were expecting a 16-cent loss. Ouch.
JPMorgan Chase kicked off the third-quarter earnings season announcing it booked $1.9 billion in paper profits from this move. So its reported $1.02 profit morphs into 73 cents a share in earnings.
See the Original Story here
