Banks "Window Dressing" Debt (BAC, C, DB)
Tweet
Share
E-mail
Get Alerts BAC Hot Sheet
Price: $54.54 --0%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 2.1%
Revenue Growth %: +13.6%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 2.1%
Revenue Growth %: +13.6%
Join SI Premium – FREE
According to a report in the Wall Street Journal Wednesday, three major financial institutions are becoming adept in shedding debt temporarily just before making their finance results public.
The Journal said that Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C) and Deutsche Bank AG (NYSE: DB) each have been engaged in the end-of-the-quarter process known as "window dressing."
This idea suggests that these major firms are actually carrying more risky debt than they are letting their investors know. This practice has been brought into the public eye following the financial crisis where banks were trading toxic mortgage-backed securities.
According to the report, the three banks have lowered their net repo borrowings by an average of 41 percent at the end of the past 10 quarters, when compared to the average for the entire quarter, and once a new quarter begins those levels of net repo borrowings are boosted.
Repos allow financial firms to borrow short term by placing securities as collateral, which allows for them to make larger bets with the borrowed funds.
This process can make profits seem greater than they truly are when times are good, but can really drag down the losses when things go bad, much as the situation during the recent financial meltdown.
The Journal said that the three banks acknowledged no wrong doing in this practice and that the fluctuations are due to the trading that they conduct for clients. The banks said that they disclose detailed accounts of their trading practices, including average borrowing data during a given quarter.
"From time to time, the size of our balance sheet will fluctuate due to market liquidity, client financing needs, the company's risk appetite and balance-sheet-management functions,” Bank of America said in a statement.
Intentionally altering debt to appear in a better financial situation goes against regulations from the Securities and Exchange Commission.
The Journal said that Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C) and Deutsche Bank AG (NYSE: DB) each have been engaged in the end-of-the-quarter process known as "window dressing."
This idea suggests that these major firms are actually carrying more risky debt than they are letting their investors know. This practice has been brought into the public eye following the financial crisis where banks were trading toxic mortgage-backed securities.
According to the report, the three banks have lowered their net repo borrowings by an average of 41 percent at the end of the past 10 quarters, when compared to the average for the entire quarter, and once a new quarter begins those levels of net repo borrowings are boosted.
Repos allow financial firms to borrow short term by placing securities as collateral, which allows for them to make larger bets with the borrowed funds.
This process can make profits seem greater than they truly are when times are good, but can really drag down the losses when things go bad, much as the situation during the recent financial meltdown.
The Journal said that the three banks acknowledged no wrong doing in this practice and that the fluctuations are due to the trading that they conduct for clients. The banks said that they disclose detailed accounts of their trading practices, including average borrowing data during a given quarter.
"From time to time, the size of our balance sheet will fluctuate due to market liquidity, client financing needs, the company's risk appetite and balance-sheet-management functions,” Bank of America said in a statement.
Intentionally altering debt to appear in a better financial situation goes against regulations from the Securities and Exchange Commission.
You May Also Be Interested In
- Compass Diversified CEO Elias Sabo to retire at year end
- Auddia receives SEC comments on merger filing, expects July closing
- Edesa Biotech raises $3.5 million in private placement led by CEO
Create E-mail Alert Related Categories
Insiders' BlogRelated Entities
Deutsche Bank, CitiSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
