TARP Banks versus Enron? (NYSE: C),(NYSE: BAC),(NYSE: WFC)

Citigroup - Corporate Office

Nomi Prins breaks down big banks' SEC filings, including Citigroup Inc. (NYSE:C), Bank of America Corporation (NYSE:BAC) and Wells Fargo & Company (NYSE:WFC).  Seems she is reviewing them for accounting games, and given that taxpayers are on the hook for hundreds of billions, wonders if it is worse than Enron?

Prins writes, “…as the largest Wall Street banks return to profitability—in some cases, breaking records—they say everything is rosy. They’re lining up to pay back their TARP money and asking Washington to back off. But why are they doing so well? Remember that Enron got away with their illegalities so long because their financials were so complicated that not even the analysts paid to monitor the Houston-based trading giant could cogently explain how they were making so much money.”

An interesting (and scary) quote from the article is “The nation’s biggest banks, plumped up on government capital and risk-infused trading profits, have been moving stuff around their balance sheets like a multi-billion dollar musical chairs game.”  She then goes on to dissect the SEC filings for Citi, BofA, and Wells Fargo and summarized them as follows.

BofAApparently Bank of America "reclassified its filing categories upon acquiring Merrill Lynch, but it doesn't break down the trading vs. investment banking revenues of Merrill. This either means the firm doesn’t truly know what's going on inside its new problem child, or doesn’t want to tell. (No wonder no one’s jumping for the upcoming CEO vacancy.) That said, despite the obvious information clouding, new acquisitions generally don’t have their activities broken out, which makes it a lot harder for regulators, shareholders, or we, taxpaying subsidizers, to know whether the merger was a success or not. This appears as a red flag, along with some discrepancies."

Citigroup is described as "another balance-sheet renovation, this time because of a sale (Smith Barney, which it offloaded to Morgan Stanley) rather than a purchase, and another trading miracle. Citigroup’s main trading arm, housed in what it calls the Institutional Clients Group (ICG), made $31.5 billion in net revenue for 2009, compared with a $7.8 billion loss in 2008. Its average daily value at risk jumped too, though “only” by 15 percent or so."

Wells FargoShe describes Wells Fargo with "Yet more innovative accounting maneuvers. For example, the innocuous sounding category, “wholesale banking” which provides traditional lending, finance and asset management services, was expanded (following the Wachovia acquisition that completed on December 31, 2008) to include more speculative activities like fixed-income and equity trading. But, those activities aren’t broken down in the firm’s SEC filing, making it difficult to determine which portion comes from trading vs. commercial or investment banking."

Read her whole story and additional details here.  This is actually a very interesting read.



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