MarketWatch: Deception season on Wall Street

[marmar]

By David Weidner, MarketWatch


NEW YORK (MarketWatch) -- Fairy tale season is about to begin.

Wall Street banks and brokerages are readying second-quarter numbers for mass digestion. They'll show healthy balance sheets, tolerable risk levels and have all the trappings of well-run companies.

Don't believe a word of it.

If the second quarter is anything like quarters of the past couple years, risk is up and capital is down. And what you'll see on earnings day bears little resemblance to the business being conducted between the bookends of the start and end of the latest quarter. After all, Wall Street is an industry built on prevaricating for clients -- Enron Corp., Greece and Parmalat Spa to name a few -- why would it come clean with its own financials?

Late last week, Bank of America Corp. became the latest big financial firm to cop to manipulating end-of-the-quarter earnings. In a letter to the Securities and Exchange Commission, B. of A. said it masked debt levels between 2007 and 2009 by making six trades designed to shine up the numbers on earnings day.

You can bet that the Charlotte, N.C.-based bank isn't the only one using the David Blaine accounting method. In April, the The Wall Street Journal examined data from the Federal Reserve bank of New York and found 18 banks including Goldman Sachs Group Inc. , Morgan Stanley and J.P. Morgan Chase & Co. masked debt levels in the five quarters ending in March.

The Journal found the banks "understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data showed. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters." Read Journal report on masked risk levels at banks. ......(more)

The complete piece is at: http://www.marketwatch.com/story/deception-season-on-wall-street-2010-07-13

[DCBob]

1. So they are fudging their books and misleading investors?? that's a serious crime..

I think this article is fudged.

[marmar]

2. Yeah, goodness knows the Wall Street-Journal owned MarketWatch wants nothing more.....

..... than to see Corporate America destroyed. :eyes:

[DCBob]

3. The author claims at the end of the article "All of this stuff, we're told, is legal"..

I find that hard to believe... given the regulatory and reporting changes that were made after the Enron scandal.