Here is Bank of America’s Q1 results.
Here were the headline’s:
• 1Q09 net income of $4.2 billion
• Diluted EPS of $0.44 after preferred dividends
• Record revenue and pre-tax pre-provision earnings of $36.1 billion and $19.1 billion on a fully taxable equivalent basis
Great right? Well, thanks to a recent FASB change, it was not because of operations. Of course you have to dig a little to find it.
Bank of America Q1 2009 Earnings
Go to page 5 and check out the fine print (bold emphasis mine):
• 1Q09 included the following items, all recorded in our corporate treasury/other unit:
– $1.9 billion pre-tax gain on sale of partial ownership in China Construction Bank
– $2.2 billion pre-tax FVO positive adjustment on Merrill Lynch structured notes
– $1.5 billion gain on sale of debt securities
Now, was it stated that “mark up” in Merrill notes was due to the recent relaxing of mark to market rules? No. But, when we consider in all areas Bank of America increase reserves for eventual charge offs (CRE, RE, consumer credit) and warned of more deterioration, one would find it hard to believe that the actual value of these notes increase from Q4 to Q1 by over $2 billion.
What is the far more likely scenario is that due to the rules change, B of A was able to account for the value of them differently.
Again, I say, “why invest in banks right now when the rules are changing constantly and it alters the value of the assets”. How can we believe the value of anything they give us? This is especially true when the recent FASB rules changed only introduced more ambiguity into “valuation” of assets than it anything else.
This earnings report is proof of that..
Disclosure (“none” means no position):None