Monday, January 25, 2010

Bank Accounting Gets Worse

"Can investors count on consistency when it comes to bank accounting? As many banks struggle with piles of bad loans, some auditors appear stricter than others when assessing their true value. ... Banks carry most loans on balance sheet at their original cost. But they must also disclose the loans' fair value, or current market value, in footnotes. ... The average gap among Ernst and Deloitte clients in the 25-bank group was about 6%; among clients of PriceWaterhouseCoopers and KPMG it was abo0ut 2%. ... But hits to the fair value of loans still matter to investors. Who audits a bank's books may have importance beyond whose name goes on the letter blessing the financial statements once a year", Michael Rapoport at the WSJ, 29 December 2009, link:

That E&Y and D&T clients had larger differences between their loans book and fair values may mean PWC and KPMG were more aggressive in making the banks write off loans! Remember, D&T is the firm that "audited" Zimbabwe Ben's financials.

1 comment:

Anonymous said...


I remember that Japan's banks had had about an 11% spread between NPLs and book value...

So I guess we have a ways to fudge.

BTW: Aren't loans traded? I thought Vampire Squid was a big player in this space. Maybe they provide valuations?