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Banks turned bad loans into income


Guest kumar
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Guest kumar

Very interesting!  Didn't we have a lurking suspicion this would happen - nice surprise?

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYhaiSOq_Tbc&refer=home

 

....When JPMorgan bought WaMu out of receivership last September for $1.9 billion, the New York-based bank used purchase accounting, which allows it to record impaired loans at fair value, marking down $118.2 billion of assets by 25 percent. Now, as borrowers pay their debts, the bank says it may gain $29.1 billion over the life of the loans in pretax income before taxes and expenses....

 

....Wells Fargo arranged the $12.7 billion purchase of Wachovia in October, as the Charlotte, North Carolina-based bank was sinking from $122 billion in option ARMs. As of March 31, San Francisco-based Wells Fargo had marked down $93 billion of impaired Wachovia loans by 37 percent. The expected cash flow was $70.3 billion.

 

The Wachovia loans added $561 million to the bank’s first- quarter interest income, leaving Wells Fargo with a remaining accretable yield of almost $10 billion....

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Guest JackRiver

What lurking suspicion are you talking about?  What surprise?

 

That banks would practice big bath accounting with acquisitions, or if not big bath accounting, the fact that loans were being marked down irrespective of their payment history, then what would you expect?

 

Wasn't it the banks that were claiming that mark to market wasn't reflecting reality?  If so, then why the accusatory tone of that article and your post?

 

Note for the future:  When executives can front load expenses and continue to accrue revenues without a mark against their present record, they will do so.  Revenues without attendant expenses makes for such a wonderful future.

 

Yours

 

Jack River

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Kumar,

 

Your initial sentence is ambiguous (to me) as to its intimation... i can see how you would be saying the "surprise" is not really a surprise, or that you are implying that the banks are somehow being nefarious.

 

"I" understand the issue at hand, but it is not crystal clear from your post what "YOU" meant (after your second reply, I gather what you meant)... just an FYI.  My first read was the same as JackRiver's... although, on another inspection, I can't really gather your meaning from only the words...

 

These boards seem more testy than usual lately... we should all be happier! ;-)

 

Thanks,

 

Ben

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Guest JackRiver

Kumar

 

Sorry, it was really the tone of the article and not your post, but you did use the words "lurking suspicion" and that seemed to imply something nefarious on the part of the banks.

 

I do need to chill.  Sorry.

 

Yours

 

Jack River

 

 

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I think that there was discussion a while back about the banks would do this (mark them too low or be caused to mark them too low)but that it wasn't necessarily the end of the world that they were going to mark the assets down too far. 

 

I would rather them mark them too low than too high any day. 

 

So, it was accusatory but not in the negative sense.

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I believe it is a partial return (when it is to your advantage) of old fashioned conservative accounting from the 60's and 70's.  Conservative accounting anticipated all losses and recognized no gains until actually realized.  It is in the first few chapters of the Beginning accounting books of that era.

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