Banks hiding losses?
In Barron’s this week, Alan Abelson writes about a discussion with Stephanie Pomboy, the Founder and President of MacroMavens, a company which provides macroeconomic research to the institutional investment community: “[There was approximately] a $10 billion reduction in the banks’ loss provisioning last year [which] was a major contributor to their gain in fourth-quarter earnings…There’s the possibility that banks are forced to mark to market all the toxic securities they carry at cost. If they were to follow the example of the FDIC, which in a sale last week marked down a batch of kindred securities, they’d have to take a 50% haircut.” Thus, the question remains if the new flexibility in marked to market accounting standards has led banks to hide losses. These figures are quite unnerving to say the least!
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