Subscribe to this blog's feedThis Bloomberg piece describes how at least $35 billion in writedowns have escaped notice:
Citigroup Inc. subtracted $2 billion from equity for the declining value of home-loan bonds in its quarterly report to the Securities and Exchange Commission on May 2 without mentioning the deduction in the earnings statement or conference call with investors that followed. ING Groep NV placed 3.6 billion euros ($5.6 billion) of negative valuations in its capital account, while disclosing only an 80 million-euro depletion to income...Taking losses on a balance sheet instead of an income statement is acceptable under accounting rules, which make a distinction between so-called trading books and long-term investments. Changes in value on the trading side go straight to revenue. Changes in the value of bonds held for the long haul can be marked down on the equity line of a balance sheet, as long as the declines aren't considered permanent.
The banks seem to be hoping that this move will buy them time, during which asset prices will recover - reversing the writedowns. That might not happen soon enough, though.
"Billionaire Warren Buffett said the U.S. economy is less than halfway through a credit crisis that already sent home foreclosures to a record and sparked the collapse of Wall Street's fifth-largest securities firm.
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