Bailout

Opaque bankers

By Felix Salmon

Banks’ public disclosures have always been on the opaque side. But now things are worse than ever, according to Nomi Prins, who should know:

In the cases of Bank of America, Citigroup and Wells Fargo, the preferred tactic is re-classification and opaqueness. These moves make it virtually impossible to get an accurate, or consistent picture of banks ?real money? (from commercial or customer services) vs. their ?play money? (used for trading purposes, and most risky to the overall financial system, particularly since much of the required trading capital was federally subsidized).

At Bank of America, says Prins, “the firm doesn?t truly know what’s going on inside its new problem child, or doesn?t want to tell”. Citigroup regularly changes how it reports earnings, splitting the company up in different ways in different years so as to make like-for-like comparisons impossible. And at Wells Fargo, trading revenues are buried as an unknown percentage of each of the four different reporting groups.

The reasonable conclusion to draw from all this is that trading revenues at all three banks are much higher than they’d necessarily want us to know or think. After all, the stock market values trading revenues on a much lower multiple than old-fashioned commercial banking revenues, which are much less likely to disappear or even turn negative for no obvious reason, and which are also much less reliant on trying to keep traders happy with ever-increasing bonuses.

Is there any way to get the SEC to force these banks to report their trading revenues in a consistent manner, allowing for sensible comparisons both between banks and over time? Or will they always find a find a way to bury them somewhere invisible? I think we all know the answer to that one.

Full post as published by Macroprudential on December 03, 2009 (boomark / email).