Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (179421)	7/12/2002 11:33:36 AM
From: reaper	Respond to of 436258

<<How do they REDUCE reserves for credit losses while their delinquencies, net credit losses and outstanding loans are all rising? >> I have not looked at the release, so this is a response regarding the general mechanics as opposed to what they did or didn't do. You take RESERVES for credit losses BEFORE those losses occur. Basically you have a set of assets, the loans you have paid out. You have a liability (or a contra-asset), which is the reserves you have taken against those assets. The liability (or contra asset) on any given day is equal to what in management's estimation are the likely losses from the assets. Now, each quarter, old reserves come out of the liability (contra asset) and new ones go in. Old reserves come out when losses are actually experienced. New reserves go in via a charge in the P&L called reserves for credit losses. I am assuming you are saying they reduced the reserves for credit losses on the P&L, not the reserve liability (contra asset). This could be because they reserved TOO MUCH in the last couple of quarters (i.e. made the reserve liability (contra asset) too big) and now they are taking a smaller reserve in the P&L because actual losses have not been as bad as they thought (i.e. as bad as they previously had reserved for). I hope this made SOME sense. Financial accounting is really screwy, as it is all accrual-based and subject to TONS of assumptions. Cheers