Will banks Q1 results be positive or negative?

Question

Bank of America, Citi, First Third, etc....and why.

Answer 1

Best Answer - Chosen by Voters

It is a matter of how much they want to play around with their books.

Banks undoubtedly will be reporting losses for years to come. However, they are hoping to be reporting profits too. What Wall Street (and the US Gov) wants to see is that profits to exceed (bad loan) losses.

How do we make this happen when there is so much "toxic" (aka - bad loans) on the bank's balance sheet and not enough profit yet?

We'll, the US Gov just allowed companies to change their accounting from mark-to-market.

U.S. rulemaker eases mark-to-market's bite
http://www.reuters.com/article/newsOne/i…

We can further alter the books by moving assets to another area of accounting method, such as "Level 3 Assets."

In Short:
Level 1 = Known asset value - such as a stock on a stock exchange.
Level 2 = Asset priced based on reasonable models.
Level 3 = "I have no clue what this 'Mo Fo' is worth. Let me guess, and move it off my balance sheet. Hopefully it will get better and when it does I can put it back on my balance sheet. I just hope the thing doesn't blow up on me during that time" (examples: Bear Sterns, Lehman Brothers, AIG).
http://www.wikinvest.com/wiki/Level_1,_L…

So now they (banks/brokers) can go back and change all their valuations on 'worthless' assets and make them seem like they are worth more (Level 2 or Level 3).

Does anyone want to buy some Rail Road stocks from the Great Depression? I'm sure they are worth a fortune if we just make up a rule and say they are worth more.

What ever the numbers are, if you change accounting rules and methods, you will have very different results. But did you really change the value of the assets or debt? No. It's still there.

With that said, earnings will prob be better than expected, and the US Gov and the market will love to see the "great improvement" on how the banks are doing so much better.

They should do well. Banks got trillions in capital (bailouts/ equity lines of credit, guaranteed down side risk on certain high risk transactions) all courtesy the US Gov (tax payer), off loading trillions more debt to the FED's balance sheet.

So when you hear a bank or broker reporting better than expected earnings in this environment, now you know why.

Source(s):

--- Finance & Risk Management Consultant
(understand all these financial games that are being played - legally).