Banks Are Failing, So They Are Changing the Rules

The Wall Street Journal is telling us that there is a new game being played by banks to help make their book of businesses “look” better. It is a desperate move but the problem is the lack of regulation that continues to allow for this latest form of unethical behavior.

David Enrich writes:

In January, Astoria Financial Corp. told investors that its pile of nonperforming loans had grown to about $106 million as of the end of last year. Three months later, the thrift holding company said the number was just $68 million.

How did Astoria do it? By changing its internal policy on when mortgages are classified on its books as troubled. The Lake Success, N.Y., company now counts home loans as nonperforming when the borrower misses at least three payments, instead of two.

This type of blatant disregard for the consumer and shareholders will continue as the FED and the Treasury turn a blind eye. Yet, the truth is that this immoral, and I daresay borderline criminal, action will continue. Let’s face it, there are really no teeth and not enough of a deterrent that provide for a second thought by any of the laws on the books today.

As long as off-balance sheet deals and creative bookkeeping is allowed, feel confident that this will go on indefinitely.

On the other hand, if the banks continue to operate under the current rule set, how long will they be able to stave off the inevitable if their book of business is failing. AND, one more thought…are we all culpable as well as it is somehow in our best interests that they stay solvent and therefore ignore the obvious?

What can we as investors do anyway except vote with our buy or sell orders?

Comments

[nukldrager:]

File it under " LIfe's just not fair..." There has always been a double standard applied by the most powerful to themselves, and the rest of humanity.

2008 Jun 20 09:09 AM

[Chuck Allen:]

Right on, Nukldrager! Banks have always enjoyed regulations that allow them to fudge their books!

Chuck

2008 Jun 20 10:29 AM

[JIMLESTAX:]

Over the top, but appreciate articles which call for bank/S&L accountability. Our Company mostly services loans with some originations and we consider 30 day accounts who are lousy credits to be underperforming; we consider some 90 or 120 day accounts performing if they are "pattern payers" and have average credit scores.
The point is the Fed should not micro manage the hair color of the collectors nor the accountant classifications of delinquency. Periodic audits will flush out the liars.

2008 Jun 20 06:54 PM

[OJO Zafado:]

"Periodic audits will flush out the liars'' ? The CEO of New Century "retired" 3 months before the company came clean and said it would have to re-state it's financials going back for 3 full quarters. What good do these audits do if the truth about a corporation's financials is manipulated for that long? We still await the perp walks. What happened with SARBOX? "What can investors do except vote...?" The whole country will vote in Nov. Then we will see what can be done to the "evil doers" that thought they were representing the investor class. It is so bad for Republicans they are having trouble finding candidates. Now a days you get their campaign materials in the mail and it says "Candidate for...." . The only way you can identify that it is from a Republican is that the letter is missing the "union label" watermark! 5 million Iraqi refugees and 4 million Americans losing their homes. The "evil doers" are about to be held accountable!

2008 Jun 23 01:39 AM

[muskie:]

First, banks are NOT failing, they are re-adjusting from record preformances to current conditions. Next year most will be sorry they didn't buy bank stocks at todays prices.
But what really is upsetting about this article is the many false statements..."lack of regulations, unethical behavior, blatant disreregard for the consumer & shareholder, etc, etc. Fed's require all loans 3 months past due to be non-preforming. What was wrong was for this Thrift Holding Co to list nonpreforming of $106 million when in fact they included $38 million that were only 31 days past the borrowers due date (the 31st day added another payment due i.e. two payments past due placed it as a non preforming loan...NOT...they were only underpreforming, not a loss or a loan charged against their reserve for loan losses.
Horowitz should not have been allowed to have this printed...Just a good education & a nice smile does not qualify him to make such false statements...how long has he been receiving market experience?

2008 Jun 23 12:34 PM

[Anguished:]

We can short their shares, buy put options!

2008 Jun 23 11:31 PM

[User 215337:]

It does not really matter to the average consumer what the banks call good or bad loans. As long as your accounts are in an FDIC insured account, you are safe up to $100,000.

In relation to a previous post, 'yes' there are banks that have failed this year.

For investors, beware. Do not rely just on financial statements for your investment transactions. Do more research than that.

Plus, do not invest more than you can stand to lose. I've learned that the hard way.

[e-mail]
www.ShortOnChange.com

2008 Jun 24 02:30 PM

[ojasvi:]

Such changes in reporting must be clearly spelt out. The management at Astoira must be confident enough to make it public and then face the results. However, this article has been very rude on banking industry.

2008 Jun 25 09:43 AM

[Mike Jones:]

Nothing will change will CEOs and other executives get huge salaries and millions in stock options while their companies fall apart at the seams. Most CEOs also have contracts that allow them to receive millions in additional pay if they are fired for poor performance.

Why doesn't someone regulate the pay of the CEOs that are driving these companies into the ground??!!

2008 Jun 26 04:33 PM

[jeffman:]

So let me get this straight. First the banks are evil because they "couldn't wait to foreclose on people with their inherintly bad mortgages", and now banks are evil because they are "reclassifying" and as a result less homeowners are considered delinquent? It sounds to me as if there will always be somebody that will be unhappy with whatever the banks do. Lets make up our minds already on what classifies as "criminal" and "unethical" behavior. Give me a break! Protect the shareholder or the homeowners? Its an easy call for all of the armchair quarterbacks that sit at home and read the financial news and feel "educated" on banking and finance, and who have a biased opinion. The fact is that if there were criminal behavior by banks in this climate, they would be called to the mat quickly by politicians showboating in an election year. Get over it. Banking is one of the most regulated industries in the country!

The truth is that there is $94 Trillion in outstanding mortgaes, and this entire subprime debacle accounts for only $100 billion of it. I know that $100 Billion isn't small change, but compared to $94 Trillion it is barely a drop in the bucket, less than one percent! of that $100 billion, banks already account for some of that to go bad. That's why they alrady have in place foreclosure departments. The stocks and the market look the way they do right now because it isn't driven by facts, its driven by fear, greed, and people who blog and know little to nothing about which they write.

2008 Jun 29 05:57 AM