Strange things in the BofA and Citi earnings statements
Back in April, I wrote about the odd way in which investor concerns about potential defaults at Citigroup and Bank of America were boosting the banks' earnings. I quoted commenter sulliclm's explanation:
they have to mark their liabilities to fair value, and in the case of their own debt (or in this case liabilities on derivative positions), they have to consider their own default potential as a component of fair value. So the more likely it becomes that Citi will default on their debt/swaps, the less those instruments are worth to the investors that hold them. Therefore the accounting guidance says that Citi should reduce the value of the liabilities on their books, and they book this reduction as a gain through the income statement. As an auditor I find the guidance to be ridiculous, but its the rule so companies are following it ...
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That's not accounting, that's economic voodoo concocted to play supposedly profitable balance sheet games with investors and tax collectors.
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Justin, maybe it's me, but I'm afraid I don't understand the issue, still after reading your article twice. - Ilene at http://www.philstockworld.com
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I think Citi is up to something. First why sell Philbro for 250 when it earned more than that since 95 year-over-year, and they're winding up their US major banking operations in "high icome area's." Word is they're loooking into 6 regions to focus on. I'm suspicious of what they're up to. I have this feeling after they if the do the 30.1 reverse stock split the company maybe be absorbed. They're IMO making it easier to liqudate by wind up they target areas, and selling asset that preform at fire rate prices. If they do the 30.1 I'm jumping shit before 60 days.
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