Zombie Bank's Recent Losses, some details

What a surprise. Citigroup posted a $7.8 billion dollar loss in Q4 2009.

LA Times:

The bank said that it lost about $1.6 billion in 2009 — after a $18.72 billion loss the year before. It also reported $7.6 billion loss in the fourth quarter, mostly as a result of a $10.1 billion accounting charge tied to the repayment of its bailout money, which ended any chance of a profit. Last year, the bank had a fourth quarter loss of $8.29 billion or a $1.72 a share.

At Citigroup, most of the fourth-quarter loss stemmed from an accounting charge linked to the company's exit from the government's Troubled Asset Relief Program. Even without that charge, Citigroup would have lost $1.4 billion in the period.

Now here is yet another accounting change mention on Morgan Stanley's earnings miss:

Revenues were $6.8 billion, missing estimates for $7.8 billion, attributed to an accounting charge of $5.5 billion resulting from a significant improvement in the bank’s credit spreads on some of its long-term debt.

BoA also reported major losses:

fourth quarter 2009 loss came in at 60 cents per share, a nickel worse than the Zacks Consensus Estimate of a loss of 55 cents. This compares unfavorably with the loss of 48 cents in the prior-year quarter.

BTW: Did you know Bank of America has a $1.1 billion dollar income gain due to it's investment in Blackrock, the company overseeing all of that toxic sludge bought by the Federal Reserve?

Speaking of which, read this post by Naked Capitalism going into explicit details on the hyped up PR plant story lie that the Fed just made gobs of profit selling toxic sludge they purchased.

So, what is this accounting change briefly mentioned and not described being attributed to so many losses by the Zombie Bank quarterly earnings reports?

Why it's our old pal! Mark to Market relaxation. It seems even some minor adjustments force write downs. From the BoA earnings call transcript:

structured notes issued by Merrill Lynch are mark-to-market under the fair value option. This resulted in a hit to earnings of $1.6 billion, $4.9 billion for the whole year, on a pre-tax basis primarily due to the narrowing of Merrill Lynch credit spreads. If you remember, the mark was a negative $1.8 billion in the third quarter. Now as a reminder, the impact of marking our structured notes does not impact Tier 1 capital.

Looking forward, while most of the negative marks should be behind us, the Merrill Lynch spreads are still outside Bank of America’s, but not by much. Additionally, our spreads are clearly outside pre-disruption levels.

On the credit valuation side, the adjustments on derivative liabilities, and this is principally in our trading businesses, resulted in a negative impact of $186 million versus a negative of $713 million in the third quarter. Our global markets revenue took additional write-downs this quarter of $1.1 billion, due to legacy positions versus a net positive of $218 million in the third quarter. Included here on the commercial real estate side, we took a charge of approximately $850 million, the remaining $250 million of marks were spread over leveraged finance, structured credit trading, CDO exposure and auction-rate securities.

It's also tricks like not counting chapter 7 bankruptcy losses as charge offs previously. (This is in regard to Capital One's "accounting adjustments")

The overall net charge off rate increased to 10.14% in December from 9.60% previously, a rather substantial jump, what jumps out of the page is the surge in Auto Finance net charge-offs which surged from 3.67% to 5.68%, a 50%+ move in one month.

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Some year

Zero percent interest rates, a historically steep yield curve, massive government support, a huge stock market rally, and yet they still can't manage a profit?
This sounds exactly like Japan circa 1990's.

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Where's Waldo?

I spent probably a good 4 hours on this post, trying to find exactly what was modified by "accounting changes" and what specific, nebulously referred to "accounting changes" were meant by each corporate earnings calls.

I mean digging through transcripts, statements.

This was a good as I could dig and this post is actually 2 days late too.

So, it leaves me deeply wondering what other kinds of toxic assets and hidden losses are on the books, enabled by relaxed accounting rules?

It would be interesting to do a graphic comparison/contrast to Japan in the same time window from the start of it.

I wouldn't be surprised to see a curve overlay and so on.

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