Opaque bankers

By Felix Salmon
December 3, 2009
Nomi Prins, who should know:

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

Banks’ public disclosures have always been on the opaque side. But now things are worse than ever, according to Nomi Prins, who should know:

In the cases of Bank of America, Citigroup and Wells Fargo, the preferred tactic is re-classification and opaqueness. These moves make it virtually impossible to get an accurate, or consistent picture of banks ‘real money’ (from commercial or customer services) vs. their ‘play money’ (used for trading purposes, and most risky to the overall financial system, particularly since much of the required trading capital was federally subsidized).

At Bank of America, says Prins, “the firm doesn’t truly know what’s going on inside its new problem child, or doesn’t want to tell”. Citigroup regularly changes how it reports earnings, splitting the company up in different ways in different years so as to make like-for-like comparisons impossible. And at Wells Fargo, trading revenues are buried as an unknown percentage of each of the four different reporting groups.

The reasonable conclusion to draw from all this is that trading revenues at all three banks are much higher than they’d necessarily want us to know or think. After all, the stock market values trading revenues on a much lower multiple than old-fashioned commercial banking revenues, which are much less likely to disappear or even turn negative for no obvious reason, and which are also much less reliant on trying to keep traders happy with ever-increasing bonuses.

Is there any way to get the SEC to force these banks to report their trading revenues in a consistent manner, allowing for sensible comparisons both between banks and over time? Or will they always find a find a way to bury them somewhere invisible? I think we all know the answer to that one.

Comments
4 comments so far

“Or will they always find a find a way to bury them somewhere invisible? I think we all know the answer to that one.”They certainly do. In looking at change for our banking system, focus on what they don’t like or ignore.

on 12/2/2009 John Silvia, chief economist for Wells Fargo stated that by lowering the minimum wage, it would help jump start the economy…my problem with that idea is that it takes years for the minimum wage to be raised…lower it will only set back millions of Americans for no good reason…thanks

Posted by ron burke | Report as abusive

So three banks report trading revenues differently, and the “reasonable conclusion” is that all three banks are trying to hide information about their true trading revenues?What utter swill.Citi SEC filings split the company up differently in different years because Citi was a different company in different years. Morgan Stanley Smith Barney, anyone? Remember all those huge SIVs Citi bailed out and reconsolidated? You don’t think Citi had to change the way it was splitting companies up in its SEC filings when it did that?And here’s another piece of hot news for you: Citi, BofA, and Wells Fargo are all different companies, with vastly different types of subsidiaries and governance structures. They should report earnings differently.Clearly Salmon has no earthly idea how SEC filings are put together, and doesn’t care either. Reuters should be able to get a blogger who isn’t shockingly ignorant of basic financial market practices. Or at least someone who’s thinking doesn’t transparently go like: “Hey, look how many “pageviews” and “inlinks” I can get when I tell people who really want to hate Wall Street exactly what they want to hear!” It’s embarrassing.

Posted by Phil | Report as abusive

Phil, you miss the point I’m afriad.

I’ve worked in financial reporting all my career and I agree big US bank reporting is incredibly opaque.

Yes, Citi has been through many incarnations of late, but non-financial companies regularly restructure or go through M&A without as much opacity.

And let’s not get started on SIVs, a most blatant way of gaming the accounting and regulatory framework.

Posted by vk9141 | Report as abusive
Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/