Bloomberg News has a story on banks keeping some of their write-downs off their income statements. They are showing the loss as a balance-sheet adjustment, which is allowed under accounting rules. The idea is that the decline in value of the security can be marked down as an adjustment as long as it is not consider permanent.
So who determines if the loss is permanent? The banks themselves, by using in-house valuation models. The banks have also been quite on letting investors know exactly the type of securities that have been 'adjusted'. Who knows if the value of these investments will ever come back.
A good passage from the article; ``The banks that have taken advantage of this accounting approach are going to have a price to pay later,'' said Hintz, the third-highest ranked securities analyst in an Institutional Investor magazine survey. ``You don't avoid the price. Those that have taken it all in their income statements will come out with clean balance sheets and move on.''
These adjustments seem to indicate that the credit problem/crises is still in its early phases.
Below is chart from the story showing banks with hidden write-downs, along with write-downs on their income statement.
Source:
'Banks Keep $35 Billion Markdown Off Income Statements (Update1)', by Yalman Onaran, Bloomberg News
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