Was BofA pulling Lehman’s balance-sheet tricks?

By Felix Salmon
March 20, 2010
John Hempton is the kind of guy who compares the numbers for quarter-by-quarter average assets in Bank of America's annual reports with the numbers for total quarter-end assets in its quarterly reports. And guess what -- if you look at the year 2006, BofA's total assets were always substantially lower at the end of the quarter than they were over the course of the quarter as a whole.

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John Hempton is the kind of guy who compares the numbers for quarter-by-quarter average assets in Bank of America’s annual reports with the numbers for total quarter-end assets in its quarterly reports. And guess what — if you look at the year 2006, BofA’s total assets were always substantially lower at the end of the quarter than they were over the course of the quarter as a whole.

Remind you of anyone?

The numbers in question are big: $49 billion in the third quarter of 2006, which is pretty much the same amount of money as Lehman Brothers hid off-balance-sheet at the height of the crisis. And Hempton explicitly says that BofA was using Repo 105 to get these results:

Repo 105 is fraud. Its a lie to investors and rating and regulatory agencies. It was also fraud when BofA did it. But both Lehman and Ken Lewis compartmentalized it as OK. And it was not the fraud that undid them – it was the overweening arrogance that thought this was alright.

Hempton even says he knows where the money went: to Japan, of all places. But I do wonder whether BofA used a foreign subsidiary to perpetrate these deals, as Lehman did, or whether it managed to find a US law firm to certify them kosher. Either way, this is a story which deserves to come out in some detail. Does anybody have Ken Lewis’s phone number?

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In banking, as with food, if it looks too good to be kosher, it probably is.

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