Bloomberg News reports that banks have kept $35 billion worth of asset write-downs from making the leap from their balance sheets to their income statements. Accounting rules permit this but it delays the inevitable -- in which a write-down on the balance sheet flows to the income statement. The reason banks are using this delaying tactic is that they can't raise enough capital to close the gap. But until they do, others will be wary of dealing with them.
Here are some examples:
- Citigroup Inc. (NYSE: C) subtracted $2 billion from equity for the declining value of home-loan bonds in its May 2 10Q without mentioning the deduction in the earnings statement or conference call with investors that followed; and.
- ING Groep NV placed 3.6 billion euros ($5.6 billion) of negative valuations in its capital account, while disclosing only an 80 million-euro depletion to income
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