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Accounting Adjustments Helped Some Large U.S. Banks Record Large Third-Quarter Gains Nov 11
Standard & Poors, Nov 2011
Abstract
Several U.S. financial institutions reported strong earnings for the third quarter in part because of accounting adjustments to the valuation of their own debt, or own-credit adjustments. Bank of America, Citigroup, Goldman Sachs & Co., and JP Morgan Chase Bank NA reported own-credit gains that amounted to, on average, approximately 85% of reported net income. In Standard & Poor's Ratings Services' view, these reported gains obfuscate core earnings and reported capital amounts for these financial institutions. Own-credit adjustments typically arise when financial institutions use fair value accounting to measure their reported value of selected financial liabilities, including their own debt. These calculations vary among companies, and we see little consistency in how financial institutions report them. To derive the fair...
Companies mentioned in this report are: Goldman Sachs & Co.,Morgan Stanley
Standard and Poors RatingsXpress Credit Research provides in-depth coverage of international corporates, financial institutions, insurance companies, utilities, sovereigns and structured finance programs. RatingsXpress Credit Research lets users determine the credit rating of holdings and identify key factors underlying an issuer's creditworthiness, distinguishes the different risk exposures for new and existing deals, and provides an understanding of how their analysts interpret key regulatory, political and environmental events and their economic impact.
Research Type: Commentary
Criteria articles describe the thought process and methodology Standard & Poor's analysts use in determining ratings. These commentary pieces discuss both the quantitative (economic and financial) and qualitative (business analysis and caliber of management) aspects of the analysis, as well as legal issues.
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