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SunTrust Banks, Inc. Message Board

  • insiders_suck insiders_suck May 24, 2011 2:51 PM Flag

    Some banks doing creative bookkepping again?

    " has been the case in recent quarters, the main driver of bank profitability (last quarter), was not revenue growth but the release of loan loss reserves. Banks took $31 billion worth of loss provisions and turned them into profits in the latest quarter, Bair said. So-called reserve releases are legitimate but unsustainable, and point to even more pressure on bank profits till the economy turns around and loan balances start to grow."

    AKA: Sweeping it under the rug.

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    • Interesting post. I'm a newbie and not familiar with the banking industry, but my observations are there's very little transparency to how bad off most all Bank loan portfolios are.I did some local research (central Florida) and found out:

      1)Lis Pendens filings have increased.
      2)Most Banks take over a year to foreclose and take title.
      3) The deficiency is not recaptured from the homeowner.
      4) That many of the REO homes have not even been put on the market.

      Why is there so little transparency?

      Why is that?

    • It amazes me how easily some of you guys fall into these shorties prey. They throw the hook and reel you guys in right away. Stop feeding them and hopefully they'll get the message.
      Don't let them get you, be smarter!

    • LB, "True or false?" Neither, it depends on what you believe the facts to be and you obvioulsy don't have any facts.



    • Lying_bstrd,
      Since that is obviously a rhetorical question, what is your point?

    • I thought Wachovia almost went under but was saved by another bank?
      True or false?

    • Lying_bstds,
      Well, actually, I am quite proud, both of my roles and large parts of Wachovia, both the original and the merged version with First Union. Just as I am proud to be an American despite our country's numerous past and current faults.

      Are you playing tag team with another of your login ids? Which one will you use next, Muchsmarterthanyou, Comfofanique, Bnkrs_r_crooks, HennyPenny or Bankbyer? No matter which one, all you ever offer is snide comments and no intelligence.

    • "I have a little more than 30 years experience in banking, all but the last two years with Wachovia..."

      I wouldn't be too proud of this. Wachovia???

    • MuchSmarter,
      I am not sure if you are refuting my points or the poster I was responding to, since your statements seem to be a mix of both, and neither. Just to ask a couple of quick questions.
      (1) How do you come up with the statement that provision is a cash expense? Maybe I am missing something, but I think the normal entry is a debit to expense and a credit to the reserve account. Where do you see cash hitting here anywhere? It doesn't come out of Profit and Loss per se, it just, like depreciation expense another non-cash item, nets against income to reduce the aggregate amount that goes to P&L.
      (2) I suggest you read the Tax Reform Act of 1986. It pulled the deduction for loan loss reserve for banks over $500 million. Unless you are arguing about the creative bookkeeping at the smaller tier, the deduction for IRS purposes is limited to the actual experienced loss in the year. The amount that was put in or taken out of the reserve is not the driver of taxes. For GAAP accounting purposes, of course, that is not the case but you are claiming the reserve is an accounting trick used to manipulate taxes.
      (3) Obviously performing loans have a reserve held against them, who said otherwise? That is the entire purpose of the loan loss reserve, a modeled set of entries that reflects the expected loss that will be encountered over the entire portfolio. Yes, default is not loss, loss being determined by the difference between the outstanding loan balance and any recovery that can be made. For certain large loans, there is a constant evaluation for impairment. But that is not used to place balances into or out of the loan loss reserve.
      (4) I would welcome a quoted section from the OCC examiners guide or Fed documentation that supports your contention that the loan loss reserve must be held in a specific liquidity class or type of investment vehicle as opposed to being a component of equity and capital.

      Well written and for sure filled with references to the FASB world, but unless I am missing something, I think it is you that are out in left field, riding a high horse and convinced you are the second coming of old JP. But I am willing to retract if you can provide a couple of good references to published regulatory or accounting literature that back up your assertions.

      It might also be nice to know your general career and professional background that makes you believe you are an expert in bank accounting and tax law. For my part, as has been divulged elsewhere in Yahoo and is no secret, I have a little more than 30 years experience in banking, all but the last two years with Wachovia starting with the old Winston-Salem institution. I have served in systems development, operations, credit ops, control and treasury. I may not be the sharpest knife in the drawer, but I try to speak from experience - which obviously does not preclude being very very wrong at times. In any case, anxiously awaiting your response.


    • some pretty gross inaccuracies and oversimplifications here...

      to your points:

      2: You can absolutely use provisioning the reserve to mitigate the taxes you pay quite effectively. Reason being: You never pay less than 0 in taxes. In good years, when taxes WOULD be high, put all your profits in reserves, then bleed down the reserves when you're having a down year. Feed that back into P&L and you wind up with a near-zero tax base for those years as well. Rather than report high earnings when times are good, and negative earnings when times are bad, you report almost zero earnings consistently, minimizing your taxable income. The fact that the reserve can be so well engineered to manipulate earnings (and thereby tax exposure) is one of the reasons it's one of the most heavily scrutinized processes in the bank.

      3: Incorrect. Loan loss reserves are 'hit' when banks charge off loans, not P&L. That's the point of having a 'reserve'. The loan loss reserve is a contra-asset on the balance sheet. Also, there are a couple 'pools' into which reserves are booked - a general reserve (FAS5) which is held for every single loan in the portfolio, as well as off balance sheet commitments (letters of credit and the like). Even performing loans have this reserve held against them. Large, defaulted loans also have specific reserves held against them. This reserve is the FAS114 reserve. Also, somewhat trivial to note, but "Default" is not "Loss". Depending on the loan, the 'mark' you talk about is not taken at default. Additionally, the implication that the loan is being marked to 'anything' is inaccurate, as it is either being discounted per some set schedule (FFIEC, for instance), or discounted based on the workout officer's opinion on the recoverability of P&I.

      4: The provision is a cash expense, as such, it comes out of P&L. Anything else would imply liquidation of capital or assets. As the Allowance is for "Incurred, but not Realized Losses", to liquidate capital for that would speak to either a massive failure of management, or an inadequate reserve process, as the entire purpose of the thing is to ensure capital base stability. "Directional correctnes" has nothing to do with this.

      5: Not necessarily. Reserves must be held on the balance sheet in a highly liquid, low risk form (read: Low yielding). As such, a massive reserve isn't going to earn much, but it is going to have to be funded. You won't find funding around where US Treasury's are paying. Too much reserves will lower the return ratios (ROA, ROE)of the bank. Given the implicit government backstop of some higher risk entities, lower returns may be less attractive to investors.

      Before you get on a high horse and pretend to be the second coming of JP Morgan, read more than wikipedia's entry on banking reserves.

    • Amazing how people on this board fall into the tactics of these shorties...

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