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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (43405)	7/19/2011 11:24:05 AM
From: E_K_S	Read Replies (2) \| Respond to of 78645

Hi Clownbuck - Bank loan valuations - classifying nonperforming loans - (Can you really believe the reported tangible asset value?) Can you explain how a bank classifies a performing loan to a nonperforming status? Are there industry (or accounting) regulations that a U.S. bank must follow in classifying the loan status (ie mortgage payments are in the rears by 90 days or more is nonperforming)? Are all loans that go into foreclosure categorized as non performing by definition. What about those loans that are titled back to the bank, are these loans classified as non performing? I ask this because I am aware of no industry standard that banks must follow in their public accounting that maintains a standard method for accounting for nonperforming loans. What adjustments do the banks make (if any) for their performing loans where the collateralized assets decrease in value (based off their initial appraisal)? Many of the loans done 24-36 months ago s/b be valued 30% less because of a falling real estate market values. Do the banks set aside possible loan loss capital because of falling real estate values. Or do they make loan loss adjustments only when these loans become nonperforming? Finally, are there any industry (and/or government) regulations as to how much leverage a bank can utilize in their business ? Is it 10:1, 20:1 or even 30:1 or is it at the discretion of the bank(s) and the type of operation/venture (ie derivatives, hedging, simple home loans) they operate. Is the recent stress test guidelines supposed to control excess leverage? Is this an easy number for me (or any other investor) to calculate for each bank? ----------------------------------------------------------------------------------------------------------------------- I have no idea what standards the mega banks must follow. Their operations are over my head when evaluating possible risks, amount of leverage, quality of their loans and what they eventually report to shareholders. It all reminds me of Enron accounting. I do have a negative bias as I got screwed on Citicorp & Washington Mutual owning shares in both which became worthless. I followed their quarterly accounting, specifically the quality of their loan portfolio(s) but in hindsight none of their reporting was a true picture of what actually was. What has changed in the last 6 years (other than a falling RE market) and why should I believe their accounting now? FWIW BAC's report was pretty good (if you believe it) especially the revenues they reported for operations other than real estate (like credit cards). I still think they are too big and should be split up into separate companies. EKS