Both Citi and Bank of America have now announced much-improved earnings for Q1 2009. Are we out of the woods yet? Unfortunately, no.
Today's BofA report notes that changes in fair market value accounting created a $2.2 billion gain from Merrill Lynch. While most observers understand that this is a one-time, non-recurring gain, let's make sure we all understand just where the "gain" came from. By essentially increasing the value of certain ML structured assets held on the books, BofA is artificially inflating assets that no one wants to buy ("toxic assets"). Although perfectly legal, this move is also perfectly delusional, because some day soon these assets will be written down to their fair value, and it won't be pretty. You can run, but you can't hide.
One other quick note: If the federal government let me borrow money at 0% interest, and then lend it out at 4-12% interest, even I could make a profit. And if a college professor can make money in banking in 2009, what should we expect from the highly-paid CEOs that populate corner offices? At least I'd have the humility not to claim these results were "a testament to the value and breadth of the franchise." (Yes, that's what Ken Lewis, CEO of BofA, said today.)
Today's BofA report notes that changes in fair market value accounting created a $2.2 billion gain from Merrill Lynch. While most observers understand that this is a one-time, non-recurring gain, let's make sure we all understand just where the "gain" came from. By essentially increasing the value of certain ML structured assets held on the books, BofA is artificially inflating assets that no one wants to buy ("toxic assets"). Although perfectly legal, this move is also perfectly delusional, because some day soon these assets will be written down to their fair value, and it won't be pretty. You can run, but you can't hide.
One other quick note: If the federal government let me borrow money at 0% interest, and then lend it out at 4-12% interest, even I could make a profit. And if a college professor can make money in banking in 2009, what should we expect from the highly-paid CEOs that populate corner offices? At least I'd have the humility not to claim these results were "a testament to the value and breadth of the franchise." (Yes, that's what Ken Lewis, CEO of BofA, said today.)
