Sponsored Content
« "That Bitch is a Trip:" Fresh Allegations Paint Monica Conyers As, Well, Pretty Much What You Figured She Was | Main | "He is smart, tough, shrewd … he is unsentimental:" Obama's Praise for Putin, Author of 23 (or More) Assassinations of Oppostion Journalists »
July 16, 2009

How One Bank's Books Show It's "Well-Capitalized" Even As It's About to Go Insolvent

Interesting bit of news here.

Big Correction: This is CIT Group, not CitiGroup or CitiCorp as I erroneously wrote. I just kept reading the one for the other.

Any time this sort of thing happens, there's obviously a lie or misrepresentation at some place in the books or the accounting process. Here's where it happens in CIT Group's case:

CIT’s bosses, led by Chief Executive Officer Jeffrey Peek, had been touting the company’s well-capitalized status repeatedly ever since, in financial filings and investor presentations. In reality, whatever capital CIT possessed existed only in its executives’ heads -- literally.

The problem here is with the accounting standards as much as the government’s capital rules. Consider this disclosure from the footnotes to CIT’s latest annual report. As of Dec. 31, CIT said the fair market value of its loans was $8.3 billion less than the value it was using on its balance sheet. Loans at the time were about two-thirds of its $80.4 billion of total assets.

By comparison, New York-based CIT had $7.5 billion of so- called Tier 1 regulatory capital as of Dec. 31, and $8.1 billion of shareholder equity. Take away the inflated loan values, and CIT’s capital and equity would have been less than zero. CIT hasn’t said what its loans’ market values were as of March 31.

The craziest part is that the difference in the loan values came down to nothing more than CIT executives’ state of mind.

Had CIT classified the loans as “held for sale,” the accounting rules would have required the company to carry them on its balance sheet at their cost or market value, whichever was lower. By labeling almost all its loans as investments instead, CIT got to avoid writing them down to market values.

So, for capital purposes, the only difference between an insolvent CIT and a well-capitalized CIT was a mere utterance by management that it planned to keep holding the loans.
No wonder so many zombie banks continue to roam the country. All they have to do is wish away their ruin, and the rules let them.

There is one catch. As CIT said in its annual report, it’s allowed to classify loans as investments only if it “has the ability and intent” to hold them “for the foreseeable future or until maturity.” Otherwise, it must book the market losses.

It’s hard to see how CIT’s management could believe the company still has the ability to keep holding onto its loans now. Not with more than $3 billion of reported losses in the past eight quarters, a looming cash crunch, and its debt trading in the bond market as if the company might fail. A CIT spokesman, Curt Ritter, declined to comment.

And obviously if they're angling for bailout money they don't have the wherewithalll to do continue carrying bad loans as "investments."

Thanks to old guy.

digg this
posted by Ace at 02:54 PM

| Access Comments

Recent Comments
San Franpsycho: "Different station says it was a targeted attack. T ..."

San Franpsycho: "Good morning morons Local TV news reports aroun ..."

Skip : "Was lightly raining when I went to bed, no idea ho ..."

JT: "Last night and tonight's titles were riffs off of ..."

JT: "Hiya Skip ! ..."

check this link right here now: "Hey! Someone in my Facebook group shared this site ..."

Ciampino - some Coffea arabica would be good: "401 396 knock knock, anyone home? Posted by: Ciam ..."

Skip : "As expected Howdy everyone ..."

JT: "(looks around....) I show up and everybody turn ..."

JT: " 396 knock knock, anyone home? Posted by: Ciampin ..."

JT: "Hi JT. A bath with soap yes. The forest/jungle is ..."

JT: "Yeah. About ready to leave for work, though. Post ..."

Recent Entries

Polls! Polls! Polls!
Frequently Asked Questions
The (Almost) Complete Paul Anka Integrity Kick
Top Top Tens
Greatest Hitjobs

The Ace of Spades HQ Sex-for-Money Skankathon
A D&D Guide to the Democratic Candidates
Margaret Cho: Just Not Funny
More Margaret Cho Abuse
Margaret Cho: Still Not Funny
Iraqi Prisoner Claims He Was Raped... By Woman
Wonkette Announces "Morning Zoo" Format
John Kerry's "Plan" Causes Surrender of Moqtada al-Sadr's Militia
World Muslim Leaders Apologize for Nick Berg's Beheading
Michael Moore Goes on Lunchtime Manhattan Death-Spree
Milestone: Oliver Willis Posts 400th "Fake News Article" Referencing Britney Spears
Liberal Economists Rue a "New Decade of Greed"
Artificial Insouciance: Maureen Dowd's Word Processor Revolts Against Her Numbing Imbecility
Intelligence Officials Eye Blogs for Tips
They Done Found Us Out, Cletus: Intrepid Internet Detective Figures Out Our Master Plan
Shock: Josh Marshall Almost Mentions Sarin Discovery in Iraq
Leather-Clad Biker Freaks Terrorize Australian Town
When Clinton Was President, Torture Was Cool
What Wonkette Means When She Explains What Tina Brown Means
Wonkette's Stand-Up Act
Wankette HQ Gay-Rumors Du Jour
Here's What's Bugging Me: Goose and Slider
My Own Micah Wright Style Confession of Dishonesty
Outraged "Conservatives" React to the FMA
An On-Line Impression of Dennis Miller Having Sex with a Kodiak Bear
The Story the Rightwing Media Refuses to Report!
Our Lunch with David "Glengarry Glen Ross" Mamet
The House of Love: Paul Krugman
A Michael Moore Mystery (TM)
The Dowd-O-Matic!
Liberal Consistency and Other Myths
Kepler's Laws of Liberal Media Bias
John Kerry-- The Splunge! Candidate
"Divisive" Politics & "Attacks on Patriotism" (very long)
The Donkey ("The Raven" parody)
Powered by
Movable Type 2.64