“The Earnings Boom is a False Spring” → Washingtons Blog
“The Earnings Boom is a False Spring” - Washingtons Blog

Saturday, April 18, 2009

“The Earnings Boom is a False Spring”

The Washington Post is saying the emperor has no clothes, and calling the Obama administration's bluff that the winter of the financial crisis has given way to a spring of bank stability and profitability:

The earnings bloom, however, is probably a false spring, according to bank executives and financial analysts...

"We don't see the light at the end of the tunnel," Edward "Ned" Kelly, Citigroup's chief financial officer, said in an interview, referring to the state of the economy....

[JP Morgan’s chief said] "Eventually [loan losses] will peak, but they've been going up consistently. We've shown you here that they're going to go up even more. They're going to continue going up in all the home lending areas, mortgage and home equity and credit cards."...

Large banks have profited despite their problems because of accounting maneuvers and earnings from investment banking...

Citigroup recorded revenue of $2.5 billion from a decline in the value of its own bonds. A 2007 change in accounting rules allowed the company to gain from its investors' loss because the company conceivably could buy back the debt at the lower value, paying less than it originally expected.

Earlier this year, accounting rule-makers also loosened the rules that determine when a company must recognize a decline in an asset's value as a permanent loss. Citigroup said that change added about another $600 million to its bottom line. ...

Analysts also caution that the combination of unusual investment banking profits and accounting benefits make it unlikely that banks can sustain profits at this level.

"I think we knew all along that the first quarter might not be indicative," said Nancy Bush, a financial analyst with NAB Research. She noted that investment banks benefited from demand for services that built up during the fall, when the capital markets largely were shuttered. Competition on Wall Street also was diminished by the collapse of Bear Stearns and the bankruptcy of Lehman Brothers, leaving more pie for the surviving firms.
Those talking heads saying the crisis is over our wrong.

No comments:

Post a Comment

→ Thank you for contributing to the conversation by commenting. We try to read all of the comments (but don't always have the time).

→ If you write a long comment, please use paragraph breaks. Otherwise, no one will read it. Many people still won't read it, so shorter is usually better (but it's your choice).

→ The following types of comments will be deleted if we happen to see them:

-- Comments that criticize any class of people as a whole, especially when based on an attribute they don't have control over

-- Comments that explicitly call for violence

→ Because we do not read all of the comments, I am not responsible for any unlawful or distasteful comments.