Selva,
Re: Can't wait....what she has to say.
I finally got a reply. Completely underwhelming PR blather. It reminded me of this quote:
"It's hard to get someone to understand the truth when his livelihood depends on his not understanding it."
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In part, here's what my corresondent sent:
Executives emphasize strength, integrity of company at
leaders' broadcast
FROM INSITE - July 25, 2002
Performance at Bank of America is strong and stable, and the company's integrity positions it well for continued success, senior executives said on Thursday.
"You can be very proud of what we've done - and who we are," chairman and CEO Ken Lewis told about 1,700 senior
leaders at the company's quarterly broadcast meeting. "We had very strong earnings, and they were real," Lewis said, referring to widely reported accounting irregularities across U.S. businesses. "I'm proud to be associated with a company that stands for integrity."
Lewis thanked the leaders in attendance for their work in exceeding analyst and investor expectations this quarter, and emphasized that with continued diligence and focus on integrity, the company will be better positioned than its competitors to weather the economic uncertainty.
And a final personal note: "Can you take all of the positivity?"
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Here is what I wrote in reply:
Hi There,
I wasn't expecting the Press Release response. That was interesting. Inasmuch as I was asking an accounting question, I'd hoped for an accounting answer. "Spin" is cheap. Facts are far more worthwhile to my way of thinking.
The INSITE articles don't say a thing. The sort of statement like: "You can be very proud of what we've done - and who we are. We had very strong earnings, and they were real," (CEO Lewis quote) is almost exactly an copy of the statements that Enron's Ken Lay was making to his employees last September, as he was wrapping up the dumping of vast amounts of shares, while trying to seduce his 401(k) bound "worker bees in the dark" about what was really going on. Caveat emptor. Lay's employees considered him to be honest, too.
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This is more appropriate to the concerns that I was writing to you about:
BAC 10-Q filed May 15, 2002
Source: biz.yahoo.com
Search for "Derivatives" yielded the following ambiguous text:
"Mortgage banking revenue was $179 million for the three months ended March 31, 2002 and was comprised of mortgage
banking income of $192 million and trading account profits of $(13) million. The 59 percent increase in mortgage banking income was driven by continued strength in profit margins and sales volumes. Trading account profits reflected the unfavorable mark-to-market adjustments on certain mortgage banking assets and the related derivative instruments."
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"Trading-related revenue decreased $280 million to $793 million for the three months ended March 31, 2002, as the $353 million decrease in trading account profits was partially offset by a $73 million increase in the net interest margin. The decrease was primarily due to a decline in revenue from equity and equity derivative products of $204 million to $126 million.
******
"In addition, to preserve its own liquidity and control its capital position, the Corporation from time to time will seek alternative funding sources. To accomplish this, the Corporation will sell or fund assets using an off-balance sheet financing entity, which in turn issues collateralized commercial paper or structured notes to third-party market participants. The Corporation may provide liquidity and standby letters of credit or similar loss protection commitments to the financing entity, or it may enter
into a derivative contract with the entity whereby the Corporation assumes certain market risk. Similar to that discussed above, the Corporation receives fees for the services it provides to the financing entity, and it manages any market risk on commitments or derivatives through normal underwriting and risk management processes. Derivative activity related to these
financing entities is included in Note Three of the consolidated financial statements. At March 31, 2002 and December 31, 2001, the Corporation had off-balance sheet liquidity commitments and standby letters of credit and other financial guarantees to these financing entities of $4.5 billion and $4.3 billion, respectively. Substantially all of these liquidity commitments and standby letters of credit and other financial guarantees mature within one year.
[[Note: It is exactly these "off balance sheet" entities, such as SPEs and SPVs (Special Purpose Entities and Vehicles, respectively) that are at the heart of the investigation by the Senate Permanent Committee on Investigations wherein managing directors of Merrill/Lynch, JP Morgan-Chase and Citigroup all asserted their Fifth Amendment rights because they are all guilty as hell in using these SPE/Vs to mask loans to Enron as "pre-pays". This is a huge RED FLAG in BAC's most recent 10-Q. ]]
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Capital Resources and Capital Management
Shareholders' equity at March 31, 2002 was $48.2 billion compared to $48.5 billion at December 31, 2001, a decrease of $351 million. The decrease was primarily due to $2.0 billion in repurchases of common stock and $508 million of net losses on derivatives in other comprehensive income,
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[[RD: Now here is something that I don't understand fully, so maybe some of your accounting wonks could explain it in plain English: ]]
Table Twelve Selected Regional Foreign Exposure:
Total Dervative (Net Positive Mark-to-Market) = $881 Millions
Total Binding Exposure (March 31, 2002) = $18, 538 Millions
[[RD: To me, $18 Billion at risk seems pretty scary. Especially in the face of a pending return to recession... ]]
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Market Risk Management
Overview
The Corporation is exposed to market risk as a consequence of the normal course of conducting its business activities.
Examples of these business activities include securities market making, underwriting, proprietary trading and asset/liability management in interest rate, foreign exchange, equity, commodity and credit markets, along with any associated derivative products. Market risk is the potential of loss arising from adverse changes in market rates, prices and liquidity. Financial
products that expose the Corporation to market risk include securities, loans, deposits, debt and derivative financial
instruments such as futures, forwards, swaps, options and other financial instruments with similar characteristics.
*******
COMMENTARY:
OK, so that's all of the available information I could find at the Yahoo Finance site. I'm now searching for the elusive "Note Three", to the most recent 10-Q filing. Here's where I've gotten to so far:
sec.gov
Looks complicated, doesn't it? Looks a lot like the blizzard of interlocking puzzle parts that Ken Lay and the Enron crowd used to deceive the market, so I'll dig a bit deeper.......... here goes............
Finally, here's the correct filing:
sec.gov
And searching for "Note Three", I find that BofA's derivative exposure is currenty about $14 Billion, down from $21 Billion a year ago....
So, I feel better. The trend is good.
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One of the reasons I was alarmed last night was because I am fully aware of the writedown that BofA had to take on
catastropic losses due to the D.E. Shaw derivative trading that occurred up until a couple of years ago. I'd been lulled into a false sense of reassurance that BofA had indeed gotten out of the derivatives business. Now I know differently. That the same sort of PR flaks who produce INSITE were lying about that, just as they lie about most anything. So, while the exposure to risk isn't as bad as I thought it might be, it also is not in the least bit reassuring to me that when I ask a specific question about a risky strategy at the bank that you come back with what is essentially a cheerleading and sloganeering campaign to say things are OK and business is honest. That flies in the face of reality. Things are certainly not OK with business today, and lies have
become a commonality among business communications as well as the astonishingly large blizzard of lies emanating from the White House. Here's a case in point:
Message 17844098
In your home state, your President is lying to you about his respect for our freedoms. Shame on him.
Can you handle all that honesty?
All the best, Ray |
