Bank Earnings: Early Innings

by: Belvedere

I doubt if there have been any more eagerly anticipated earnings in the last ten years than those of the big banks ever since they started their self-destruct process a couple years ago.

First, everyone sweated over the loan loss allowances as housing and asset-backed securities slumped; then when firms had to start reporting the kind of fair value estimates employed - the Level 1, 2 and 3 hierarchy - everyone anticipated which bucket would be fullest. Now, the most hotly-anticipated bank figure is tangible common equity, in whatever form you decide to define it. It's kind of like pro forma earnings has always been, only maybe this is a pro forma lifeline measurement.

The concern of those doing instant analysis on 8-K earnings releases: how has TCE been ginned up by the FASB's new rules on fair value and other-than-temporary impairments? Hard to tell because firms don't have to say much about it in their earnings releases. We've done searches of the recent 8-Ks trying to find good discussion of any early implementation of these (abysmal) standards, and found practically nothing. I'm holding off doing any serious digging until there are 10-Qs, when there are some real facts to be found.

That is, I hope there will be real facts to be found. Banks keep finding new ways to earn miserly multiples, and by this time it wouldn't be surprising to see them take advantage of accounting standards that investors neither like nor trust, in order to create a wonderful impression at earnings time - only to reveal that they've been half-truthful when the full 10-Q arrives.