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Bank of America (BAC) is engaged in "accounting arbitrage" says Manal Mehta, reserving far less...

Bank of America (BAC) is engaged in "accounting arbitrage" says Manal Mehta, reserving far less for legal cases than it may have to pay out. If regulators forced the bank to properly account for the possible losses, it's likely they would disallow any capital returns and force BofA to continue socking away its profits.
Comments (34)
  • More anti-business talk out of the NY Times. What a surprise.
    6 Mar 2013, 01:05 PM Reply Like
  • Would be nice if someone would analyze Manal Mehta's track record with regard to projecting BAC's losses from the Countrywide unit. It is pretty bad but then again the losses have been larger than I expected too.


    Wonder if anyone would care to read an article about such a topic?
    6 Mar 2013, 01:53 PM Reply Like
  • Watch this impact the whole finance sector until next week that is.when investors realize that


    1) B of A is not the whole world.


    2) This writer may not be right. There is precedent for really large tales coming from the NYT.


    3) The NYT is nutty as a fruitcake at times and destroying the country with their comical bias and lies.


    I am not long B of A.
    6 Mar 2013, 01:12 PM Reply Like
  • BAC engaging in other than truthful financial practices???
    6 Mar 2013, 01:26 PM Reply Like
  • Seems like BAC is still engaged in dubious accounting. Why should anyone be surprised? A leopard can never change its spots. Those who do so with an intent to cheat shareholders from getting higher dividend payouts will burn in hell. Somebody should call them out.
    6 Mar 2013, 01:32 PM Reply Like
  • Sorry, ben, but actually the spots on a leopard can change considerably (according to exposure to sunlight, mostly, I believe)!


    YES, I know; totally irrelevant...
    7 Mar 2013, 10:22 AM Reply Like
  • I was speaking metaphorically, gwynfryn....anything will change color if exposed to sunlight for unduly prolonged durations. I suspect BAC has not foresworn on its past unsavory practices, so we always have to read between the lines whenever they come out with something different (not new).
    7 Mar 2013, 11:52 AM Reply Like
  • Not if they are dead and that's what BAC is to me. A bright light focused on BAC would considerably change something.
    7 Mar 2013, 12:18 PM Reply Like
  • This is not a credible article ,and lacks any does he arrive at his statement without inside knowledge of the strength /weakness of the Bank's legal position .
    6 Mar 2013, 01:45 PM Reply Like
  • The artcile isn't entirely wrong, just incredibly slanted. BAC is navigating significant legal rapids and has set aside a fixed amount of money to pay for settlements based on its current estimates of how succesful it will be. This is widely known and has been explained by management. They are setting aside less $ than the worst case scenario will require, big deal. There is a good 5 part article about it here-
    6 Mar 2013, 02:30 PM Reply Like
  • Furthermore, why would one want to set aside enough money to pay all anticipated losses? If a company sets aside enough cash to pay for all anticipated losses, then the company becomes a juicy cherry ready for picking. I think a company is in a better position to bargain if its pockets are half-empty.
    6 Mar 2013, 07:46 PM Reply Like
  • Good point bill!
    7 Mar 2013, 10:22 AM Reply Like
  • It is normal for large corporations to set aside less than the worst case and adjust quarterly as new information detracts from or improves each situation. This is a constantly shifting and updating practice.
    6 Mar 2013, 02:42 PM Reply Like
  • and is REQUIRED (not optional) under the accounting rules.
    6 Mar 2013, 03:05 PM Reply Like
  • i donnt know. much abouut theaccouunting of bac buut i do knnow that mannagement is trying to buuy ouut the govermennts stake and. for that the goverment is requiring high capitol reserves. normally management wouuldnnt care buut the ceo and board are limited on. there pay as lonng as the goverment ownns. a big stake so i thinnk it is inn there best interest get more. then sufficient capitol so m innclines. not to. beleive this. story. ceo's r. like politiciann. they donnt do annything uunntil u threaten there pay check
    6 Mar 2013, 02:52 PM Reply Like
  • what "government stake" are you referring to?
    6 Mar 2013, 04:26 PM Reply Like
  • Once again, I would like to remind everyone that a majority of mortgage-backed investors have already accepted 8 cents on the dollar in settlement for a very very good reason: As accredited investors, they signed documents saying they knew all the risks, had done their due diligence, and accepted they could not sue in the future. I used to sell this stuff.
    6 Mar 2013, 02:53 PM Reply Like
  • Really benitus; a leopard does not change its stripes? Except that it would be more accurate to understand that we're not talking about the same cat here. It's a whole different leopard.


    Long on BAC
    6 Mar 2013, 02:58 PM Reply Like
  • @ms
    "Really benitus; a leopard does not change its stripes?"
    Did he REALLY say STRIPES???
    And if BAC does change history tells us it sure won't be for the benefit of the shareholders & clients. Executives OTOH is a whole different thing.
    7 Mar 2013, 12:25 PM Reply Like
  • no time did I use the word "stripes" if you care to check my comments. Anyway, I don't think much of BAC's executives. They've never shown that they've got the shareholders' backs. They only use shareholders as cannon fodder. Nonetheless, I do think that BAC has some potential to increase in price, so I'm going to reverse my positions, soon as I get a chance to cover my shorts.
    8 Mar 2013, 06:09 PM Reply Like
  • I know - I was quoting MScambridge who said that - I knew full well you didn't say that - check the first line of the MScambridge post ahead of mine.
    8 Mar 2013, 11:28 PM Reply Like
  • Tiger!
    9 Mar 2013, 08:41 AM Reply Like
  • sorry, bill, for my misconception. I don't quite understand the "@", as I'm pretty old-school, much as I like to stay relevant to the times.
    11 Mar 2013, 12:33 PM Reply Like
  • No problem.
    I guess it's a new shortcut for "re".
    If SA could manage to sort the comments relating to the applicable post when they were made there wouldn't be a problem - that's why I usually try to reference my comments directly. Bad enough we a few bills (no pun intended) to further confuse the issue. (I'm not the first to complain).
    12 Mar 2013, 12:24 PM Reply Like
  • Misguided NYT article.


    Bank stress tests have nothing to do with pending or future lawsuits.


    If it did, just being sued would generate lower performance on the stress tests, and that makes no sense, as you would have to assume a loss every time someone tried to get some $ out of you.


    It just doesn't work that way.
    6 Mar 2013, 03:11 PM Reply Like
  • If you add up all the law suits it eclipses all the wealth in the world.
    6 Mar 2013, 04:27 PM Reply Like
  • Correct or not, it is established practice for all companies to create and reserve, but pay legal settlements out of future earnings, because it takes a long time for legal cases to either settle or go to trial, and the amounts are unknown. If companies reserved to the most maximum extreme, they would be tempted to use such reserves to "manage earnings" (using excess reserves to conceal poor operating performance) which is prohibited. The final determination for the adequacy of reserves is properly a final decision for their auditors.
    6 Mar 2013, 05:18 PM Reply Like
  • Yeah, who is this 'Manal Mehta' anyway? GAAP chairman or something? How come I never heard this name?


    If not, why bother? A lot of people had said the world ended on Dec 21, 2012. We're all still here talking.
    6 Mar 2013, 06:51 PM Reply Like
  • A little short on BoA? I don't think the stress tests work that way.
    7 Mar 2013, 06:10 AM Reply Like
  • More sour grapes from the NYT camp. The NYT always wants to disparage BofA. Why does the NYT camp rather not applaud BofA for having spared the US taxpayer lots of money by swallowing (hard) on the acquisition of two moribund financial groups, ie Countrywide and ML. The bill for these two disastrous acquisitions was entirely paid by the shareholders on record of Dec 2007 & 2008.They lost more than 90 % of the then shareholder value.
    Who is Manal Mehta anyway ? I can hardly believe that the rigorous FED stress tests would ignore such an issue.


    Frankfurt Germany
    7 Mar 2013, 10:28 AM Reply Like
  • If you think BAC spared anybody anything it was themselves. I haven't heard ANY shareholders applaud BAC for being so generous to the US taxpayer by screwing them to the wall. Obviously you weren't one of the shareholders on record of Dec 2007 & 2008 that lost more than 90 % of the then shareholder value. I doubt they are applauding BAC.
    7 Mar 2013, 12:34 PM Reply Like
  • Bill,actually , I was. And, if these companies had not been bought by BAC, they would have gone straight to the US Treasury, and that ultimately , is the US taxpayer before any recoveries 4/5 years later, may be ! BAC was not generous by design but just dumb to do these deals. But definitely it saved a lot of money for the Treasury in whatever resuce scenario might have happend.
    8 Mar 2013, 10:21 AM Reply Like
  • OOPS - but all I can say is I feel your pain. I made a little when it was bouncing around in the 30s - Gave it all back and then some with the Countrywide fiasco - so I can share some of your pain.
    8 Mar 2013, 11:32 PM Reply Like
  • bill...and ralph....we're all victims of pain when companies are mismanaged. Been there and suffered much. Too painful to recollect.
    11 Mar 2013, 12:35 PM Reply Like
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