On Saturday, the Financial Accounting Standards Board (FASB) told banks that “mark to market” accounting standards would be relaxed and that they could use internal “models” to create fantasy prices on unsalable, and what might be considered by some to be worthless, assets.
The return to “mark to fantasy” accounting may have something to do with the fact that, at 7:00 AM, this morning, JP Morgan (NYSE:JPM) reported a better than expected 11 cent per share profit, even after allegedly marking down a host of assets inherited from recently acquired Washington Mutual (NYSE:WM). Although commercial banks, unlike investment banks, could always hide investment losses, by categorizing certain losing bets as “not for sale”, when acquiring a company, like WaMu, they were previously required by the accounting rules to write down all the losses to market value.
In spite of the small profit, JPM also reported that almost all areas of the banking business are now significantly stressed, and less profitable. That is not news, because we all know that already. The extent of the decline in all areas of banking, including credit cards and commercial lending, however, was surprising. Credit card charge offs rose from $1.7 billion to $3.3 billion. Provisions for losses in commercial banking rose from $47 billion in 2nd quarter of 2008 to $126 billion in the 3rd. Most frightening, however, were overall revenues. Net revenue dropped precipitously, down 18.3%, to $16.1 billion from $19.7 billion last quarter, and from $17 billion in the 3rd quarter of 2007.
The webcast will take place today, at 9:00 AM. It would be nice to see the issue of mark to fantasy is fully explained and the truth ferreted out. Whether or not that will happen is questionable, however. We shall see…
Disclosure: Author has no interest in JPM