The past year has been tough, especially on the banking industry. However in recent months, their balance sheets have stabilized and once again started to report profits. I’ve been leery about this dramatic turn around, and now I’m concerned. The banking industry may be intentionally silencing a problem, which is simply one type of silent problem. Bloomberg reports in Bank Profits From Accounting Rules Masking Looming Loan Losses. It states:
“With our capital and assets, stressed as they have been, we can go back to focusing all our attention on managing our business and restoring value,” Citigroup Inc. Chief Executive Officer Vikram Pandit said after Geithner’s examinations were completed. The revival may be short-lived. Analysts who have examined the quarterly profits and government tests say that accounting rule changes and rosy assumptions are making the institutions look healthier than they are…
Citigroup’s $1.6 billion in first-quarter profit would vanish if accounting were more stringent, says Martin Weiss of Weiss Research Inc. in Jupiter, Florida. “The big banks’ profits were totally bogus,” says Weiss, whose 38-year-old firm rates financial companies. “The new accounting rules, the stress tests: They’re all part of a major effort to put lipstick on a pig.” Further deterioration of loans will eventually force banks to recognize losses that their bookkeeping lets them ignore for now, says David Sherman, an accounting professor at Northeastern University in Boston…
The financial collapse in 2008 was preceeded by years of silent problems that went unnoticed. Today however, everyone is looking for them with a vengeance. No one wants to be embarrassed again. However, just because these issues are now visible, it doesn’t mean that government and the banking industry won’t work diligently to make them silent again. Will the analysts allow it to happen, or will they be the vigilent watchdog we need?
What do you think?
Tags: banking, profits, Silent Problems
