I'm hearing a lot more lately about how they have grey assets, bad assets, that aren't reflected yet on their balance sheets. I've heard this in the past and I'm hearing it again now that banks are getting upgraded by Goldman Sachs. This press release came out today pointing out that it's still not reflected on Wells Fargo or Bank of America's books.... "Contrary to the Goldman call, Whalen says the earnings outlook will get worse over the next two quarters, culminating in a bloodbath in the fourth quarter." http://finance.yahoo.com/tech-ticke...:-Banks-"Heading-Into-the-Storm,"-Whalen-Says So what I'm wondering is when will they report and have these reflected? It would seem logical that BAC would have it reflected as soon as possible so they could dump the bad news with the old CEO and move forward with a new CEO who will straighten out the mess. I don't know any CEO who would want that bombshell dropped on their watch. All people would see is the stock is down so many percentage points since this new CEO took over. I would think any new executives would want write downs applied before they took over. Part of me feels that they may never reveal the bad assets. Maybe they are so horrible that they cannot reveal them and are being protected by the government from not revealing them to protect our banking system from collapsing/failing or needing more bail out funds. Maybe they are waiting until a good earnings quarter to offset a majority of it to soften the blow? I don't know. It's been noted that Wells Fargo and Bank of America and other banks have a lot of write downs to come. Anyone know if they are required to report them anytime soon legally?
I get the distinct impression the off balance sheet numbers are known by everyone who needs to know and on some other level most are going to disappear.
I think that is the general sentiment some people seem to be having right now as bank stocks rally. However I've never seen a company's stock not take a hit after doing a write down. From my understanding, once it's officially on the books, it will then legally/contractually effect everything from credit ratings as balances are adjusted, valuations that are based on old numbers, etc. Because nobody does valuations based on what they believe to be true or might be true, they can only go off what the company has reported to date and that is documented. Everything else is a projection. As far as I know it's like an insider thing, until it's published nobody really knows except insiders. And if you do know you are aware of insider information. Would analysts really know? Are they calling up the firm and saying hey I need to know the amount of write downs that haven't been reported yet so I can give my recommendation and they are giving it out? I doubt it personally. Assumptions are being made I think. So what I'm wondering is when will they be legally required to show their hand?
If Goldman Sachs upgrades a stock and it does a huge write down and tanks is Goldman Sachs at fault for upgrading it? I think the case could be argued, how are they to know the extent or amount of write downs? If they knew, technically everyone should have the right to know. And if everyone knew, it would definitely be a number that is discussed. Personally I don't see how a recovery could even be estimated/projected without knowing the full extent of the write downs to properly project how long it will effect earnings.
A conduit is a bankruptcy remote special purpose vehicle or entity, which means that it is a separate business entity and is not rolled up into the sponsoring company's balance sheet. You will not see the assets and liabilities of the ABCP program in the sponsoring company's consolidated financial statements. This is done to free up the sponsor company's balance sheet and improve its financial ratios. http://www.investopedia.com/printable.asp?a=/articles/bonds/08/commercial-paper.asp Companies have used off-balance-sheet entities responsibly and irresponsibly for some time. These separate legal entities were permissible under generally accepted accounting principles (GAAP) and tax laws so that companies could finance business ventures by transferring the risk of these ventures from the parent to the off-balance-sheet subsidiary. ------------------------------------------------------ It seems there would have to be an accounting rule change/requirement. This would defeat the entire pupose of the original rule. Ha! and that's not the end of it neither. There's more and its worse.