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Strategies & Market Trends : Value Investing

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To: Mr.Gogo who wrote (45041)	10/19/2011 2:52:45 PM
From: Spekulatius	1 Recommendation of 78711

>>Can anyone explain to me why all of a sudden all banks report higher earnings on accounting gains? What is the logic behind it. Do they put aside less money for reserves? And if this is the case why do they do that?<< There are various aspects of accounting gains. Some have market to market gains due to bonds appreciating in value. other show reserve releases due to the fact that their non-performing loans have been decreasing. I have not issues with that. What I have an issue with are the accounting gains on the liability side that run through the income statement. What happens is that debt spreads for banks have been increasing rapidly during the last few month, which means that their debt is worth less (they are essentially considered less creditworthy) and since now the liabilities are worth less, the bank is booking an income gain (even though these gains are highly hypothetical since they never could buy back this debt and issue new debt at nominal). This part is not an accounting trick, it is required by GAAP, but theose rules I suspect have been set by the banksters who desire to show less income volatility. While required by GAAP, it makes a mockery of common sense for most of us.

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