Jeez

Wells Fargo: Whatever Happened to Bank Bears?

After all this data and research, at least you did decide to short WFC. How about all the philosophy of "market neutral". I was waiting to see that trick with your extreme pessimistic view.

However, remember you (and no one) can or should fight the fed - and they have made up their mind to prosper all these banks.

The No-News Market Move

If you knew all this, why did you not write this on Friday; so that I could have sold piles of my C and BAC shares first thing today morning! Why is it always after the horse has bolted that everyone comes out with ever smarter reason for the price action!!

Thanks for the list of gimmicks - something to remember next time I am tempted to pick some financials on the roadside.


On Apr 20 08:31 PM loko wrote:

> Legal Cover-Ups, Flim-Flam and Sham
> In the Big Bank's "Glowing"
> First-Quarter Earnings Reports
>
> Wall Street is aglow with the latest "better-than-expected" earnings
> reports by major banks. But take one look below the surface, and
> you'll see three of the most egregious accounting gimmicks in recent
> history.
>
> Gimmick #1. Toxic asset cover-up. In their infinite wisdom, global
> banking regulators have now agreed to let banks cover up their toxic
> assets by booking them at fluffy-high values, bearing little resemblance
> to actual market prices. Like magic, the bad assets are suddenly
> worth more, as hundreds of billions in losses are defined away.<br/>
>
> Gimmick #2. Reserve flim-flam. Every quarter, banks are required
> to estimate their losses and decide how much to set aside in loss
> reserves. If they deliberately guess too much in one quarter and
> too little in the next, they can shove all their bad earnings into
> earlier P&amp;Ls and make future P&amp;Ls look rosy by comparison.
>
>
> Gimmick #3. The great debt sham. Consider this scenario: A financially
> distressed real estate developer owes the bank $4 million. His revenues
> have plunged. He's lost a fortune in his properties. And he's on
> the brink of bankruptcy.
>
> Therefore, in the secondary market, traders recognize that loans
> like his are worth, say, only half their face value, or about $2
> million. So far, a very common situation, right?
>
> But now imagine this: He walks into the bank one morning and claims
> that he really owes only $2 million. Why? Because, in theory, he
> says, he could buy back his own loan for that price, thereby reducing
> his debt in half.
>
> In practice, of course, that's a pipedream. If he actually had the
> cash to buy back his own loans on the market, then he wouldn't be
> financially distressed in the first place. And if he weren't financially
> distressed, his loans wouldn't be selling on the market for half
> price.
>
> The reality is that he can't buy back his own debt and never will.
> And even if he could someday, he will still be on the hook for the
> full $4 million unless and until he files for bankruptcy and the
> bankruptcy judge decides otherwise.
>
> That's why the government would never let real estate developers
> — or hardly anyone else, for that matter — mark down the debts on
> their books and still stay in business. But guess what? The government
> lets banks do precisely that!
>
> It's the ultimate double standard: The banks get away with inflating
> their toxic assets. But at the same time, they're allowed to mark
> to market their own debts, which happen to be trading at huge discounts
> on the open market precisely because of their toxic assets.
>
> Accountants call it a "credit value adjustment." I call it cheating.
>
>
> Finding all of this hard to believe? Then consider ...
>
> How Citigroup Mobilized ALL THREE of These
> Gimmicks to Create One of the Greatest Accounting
> Shams of All Time in Its First-Quarter Earnings Report
>
> I'm outraged. But I'm glad to see that someone besides us is speaking
> out:
>
> * Meredith Whitney, one of the few no-nonsense analysts in the industry,
> says that the banks' latest reports are, in essence, "a great whitewash."
>
>
> * Jack T. Ciesielski, publisher of an accounting advisory service,
> calls it "junk income."
>
> * And Saturday's New York Times, picking up from their research,
> lays out precisely how Citigroup has transformed a massive loss into
> what appears to be a fat profit ...
>
> First, Citigroup deployed the Toxic Asset Cover-Up. By inflating
> the value of the bad assets on its books, it was able to beef up
> its after-tax profits by $413 million.
>
> Second, Citigroup used the Reserve Flim-Flam gimmick: By (a) shoving
> most of its bad-debt losses into last year's fourth quarter and (b)
> greatly understating its likely losses in the first quarter, the
> bank legally rigged its books to look like it had made major improvements.
> Even assuming no further deterioration in its loan portfolio, I estimate
> this gimmick alone bloated profits by at least another $1 billion.
>
>
> Third, Citigroup went all out with the Great Debt Sham, marking down
> its own debt and creating an additional $2.7 billion in purely bogus
> profits from this maneuver alone.
>
> So here's Citigroup's true math for the first quarter:
>
> So-called "profit"
>
> $1.6 billion
> Gimmick #1
>
> $0.4 billion
> Gimmick #2
>
> $1.0 billion
> Gimmick #3
>
> $2.7 billion
> Total gimmicks
>
> $4.1 billion
>
>
>
> Actual result:
>
> $2.5 billion LOSS!
>
> And all this despite the fact that Citigroup's loan portfolios actually
> deteriorated further in the first quarter. Based on its Q1 2009 Quarterly
> Financial Data Supplement, we find that:
>
> 1. Net credit losses in Citi's global credit card business surged
> from $1.67 billion at year-end 2008 to $1.94 billion by March 31.
> And compared to March 2008, they surged by a whopping 56 percent!
> (Page 9 of its data supplement.)
>
> 2. Foretelling future credit card losses, the delinquency rate (90+
> days past due) on those credit cards jumped from 2.62 percent at
> year-end to 3.16 percent on March 31 (page 10).
>
> 3. Credit losses on consumer banking operations jumped from $3.442
> billion on December 31 to $3.786 billion on March 31. And compared
> to the year-earlier period, they surged 66 percent (page 12).
>
> By almost every measure, Citigroup's first-quarter numbers are worse
> than they were just three months earlier and far worse than they
> were 12 months before.
>
> My forecast: Citigroup's effort last week to twist this into an "improvement"
> will go down in history as one of the greatest banking deceptions
> of all time.
>
> But Citigroup is not the only one. Nearly all other major banks are
> suffering similar surges in their credit losses and delinquency rates.
> Nearly all are using at least one of the same gimmicks to bloat their
> first-quarter profits. And every single one is destined to see massive
> new losses, driving their shares to new lows and the banking system
> as a whole into a far more severe crisis.