Bank Of America's $10.7 Billion Accounting Mistake Hid Debt, But Was Accident, Bank Says

Bloomberg:

Bank of America Corp., the largest U.S. bank by assets, said it wrongly classified as much as $10.7 billion of short-term repurchase and lending transactions as sales from 2007 to 2009 to reduce its end-of-quarter assets.

Read the whole story: Bloomberg

Comments

[mrportman]

10:23 AM on 07/13/2010

I don't enjoy defending big corporations, but I'm going to in this case. $10.7 billion on a $2.3 trillion balance sheet is nothing. Yea, ya wonder how the mistake was made, the motives behind it, the competency of those in charge, etc. In reality, the amount is too small - it doesn't make a significant different to user's of the financials.

[PhilipTaylor]

03:59 AM on 07/13/2010

BofA is hiding a LOT MORE THAN THAT: TRY $78 TRILLION!

"Off-Balance-Sheet" for 5 largest Banks ranges from $32 Trillion - $82 Trillion

“Off-Balance-Sheet” Toxic Derivatives according to 0ffice of Comptroller of Currency, 0CC, quarterly Report:

1 JPM0RGAN $81TRILLION in Toxic Derivatives
2 BofA $78TRILLION
3 G0LDMAN $48TRILLION
4 M0RGAN $39TRILLION
5 C1T1GROUP $32TRILLION

http://www.occ.gov/ftp/release/2009-72a.pdf
Page23!

[mrportman]

10:18 AM on 07/13/2010

I find your post to be misleading. The term "hiding" implies that BoA is doing something sneaky. As long as they are following GAAP (generally accepted accounting principles), the company technically isn't really "hiding" anything. It would be up to the accounting profession's governing bodies to make a change to GAAP.

Further, you provided Q1 2009. The link to the OCC’s Quarterly Report on Bank Trading and Derivatives Activities First Quarter 2010 is http://www.occ.treas.gov/ftp/release/2010-71a.pdf . I implore you to actually read the whole piece before referencing it.

Last, this quote was taken directly from the report, "The notional amount of a derivative contract is a reference amount from which contractual payments will be derived, but it is generally not an amount at risk." So why are you citiing the notional amounts in your post? Seems to be more misleading to me.

[RickshawJohnson]

11:18 AM on 07/13/2010

Because he, like many others on this board, aren't interested in learning about finance or the facts behind these issues. They are just interested in rabble-rousing.

[PhilipTaylor]

11:09 PM on 07/13/2010

The ONLY WAY WE HAVE OF GETTING TO THE TRUTH IS USING HIDDEN DATA - UNEXPLAINED AND PURPOSEFULLY VAGUE TO COVER THE HORRIBLE TRUTHS OF GREED AND CRIME COMMITTED BY A CORRUPT MANIPULATING CRIMINAL RICH USING EVERY TRICK IN THE BOOK TO CHEAT THE REST OF THE WORLD FOR THEIR OWN GAIN.

THE SICK CLASS OF MORE MORE MORE AND NEVER BE SATISFIED EVEN IF YOU HAVE STOLEN THE LAST DROP OF WEALTH!

[PhilipTaylor]

02:52 AM on 07/13/2010

The double life of Wall Street

Commentary: Masking debt mars earnings season

Less than a decade ago, a crusading attorney general upended Wall Street with a series of investigations and settlements concerning practices that the industry and public took for granted: late trading of mutual funds, bid-rigging in the insurance market and research conflicts.

Eliot Spitzer's personal failings and his lasting impact as a reformer, at least he had the gumption to challenge practices on the grounds of common sense and evenhandedness. Unfortunately, no one seems to have taken up the mantle of championing fairness in the markets.

http://www.marketwatch.com/story/deception-season-on-wall-street-2010-07-13

[lvdragonlady]

09:37 PM on 07/12/2010

And if you believe that, I am sure BofA has a foreclosure, related to swamp land in East Texas that they would gladly sell to you.

[MyrtleJune]

07:17 PM on 07/12/2010

b s

[ChasG]

11:47 AM on 07/12/2010

Before everyone gets excited, notice that the article describes this as a "balance sheet" error, and there is no mention of over-reporting income. Balance sheet classification errors can have a regulatory impact if they are large in comparison to the entire balance sheet. This error was not.
This is more a symptom of banks engaging in complex hedging transactions that they should be disallowed from engaging in, and I would hope this type of transaction is so included in FinReg reform. But don't look for fraud here. Read the article. Nobody's bonuses are based upon the balance sheet. This article does not say BOA misplaced anybody's money. This article does not say BOA misrepresented its income and losses from operations. It doesn't say B of A intentionally suffered huge losses from bad loans. This article doesn't say "fraud." That's because these things did not happen.
The article does say BOA entered into a series of complex transactions (this one looks like a hedging transaction) that were mis-classified on the balance sheet by a magnitude of one/one-thousanth of the bank's total assets on the balance sheet, an error of one tenth of one percent. My hope is that FinReg reform currently being considered by Congress will simply make it unlawful for banks to enter into these complex transactions that apparently the banks themselves don't seem to understand thoroughly.

[iridium53]

11:34 AM on 07/12/2010

If a small business made a substantive mistake the IRS would be on them in a minute - working to fine them personally or jail them.

When a large business makes such a mistake, Mary Schapiro's SEC does not one thing - as if all these intentional mistakes that benefit the big companies and their executive bonuses are not caused by the executives.

No investigation despite the fraud they perpretrated on the shareholders and public.
No prosecution - nobody held accountable - Holder's (DoJ, U.S. Attorneys) team only goes after the small guys.

That's the Obama way. Take from the poor and give to the rich.

[mrportman]

10:33 AM on 07/13/2010

If a small business makes a mistake, the IRS would have to first identify that mistake before "being on them in a minute." The same would hold true from a large business. What makes you believe that the IRS would go after one and not the other? It's more tax revenues. It wouldn't behoove the government to let that revenue slide through its fingers.

Further, why are you jumping from the IRS to the SEC? Where is your connection? Sounds to me like you're trying to make a link using a giant stretch in logic. This wasn't fraud. $10.7 billion on a $2.3 trillion balance sheet is known as immaterial in the accounting world. The amount isn't big enough to sway anyone.

Me thinks you tried to make this giant leap in logic to take a shot at Obama. Unfortunately, you're so far off that it appears to me it's you, not Obama, that's a fraud.

[vippy]

11:10 AM on 07/12/2010

Do tell me how big was the bonus for the CEO at this bank? Well deserving I bet.

[SomeGuy41]

11:04 AM on 07/12/2010

About as much of an accident as Mel Gibson's tyrade...

However, there is more to blame than just BofA here. The ratings agencies that took bribes to AAA the investments in the first place to probable bribes at the SEC.

This stuff was not "missed" it was colusion. None of what happened in the crisis was an accident by ant means. You mean an accident that somehow lined the pockets of big banks with tax payers money was just that, an accident. Sure....

[RickshawJohnson]

11:14 AM on 07/12/2010

Then it must have been an accident when the banks paid that taxpayer money back with interest, right? I don't see the benefit of banks taking all of that taxpayer money, and then repaying it a few months later with interest charges.

But I'm sure you know what you are talking about.

[SomeGuy41]

02:11 PM on 07/12/2010

It's not about the "loans" it's about the terms of the loan and the reason they needed it.

We are not doing anything to curtail this kind of financial instability. Not to mention the free pass that the SEC and ratings agencies got on all of this. Eventually the mentality that the taxpayer is their to bail them out, without being addressed will lead them to take much higer risks. For pete's sake they are already working MBS's again at huge risks.

[NevaforLeadership]

11:01 AM on 07/12/2010

It is either ethical or it is not. Materiality in no way mitigates unethical accounting.

[JDogger]

11:24 AM on 07/12/2010

Is unethical also illegal?

[NevaforLeadership]

05:56 PM on 07/12/2010

Not necessarily.

[Scent]

10:57 AM on 07/12/2010

If I make a Millionth of that kind of "accident" I go to jail. How is it those f**kers are still working. - AND getting MY tax dollars to repeat their crimes?

[NevaforLeadership]

11:03 AM on 07/12/2010

What tax dollars to repeat their crimes? Bank of America has repaid all its TARP funds.

[Scent]

12:50 PM on 07/12/2010

LOL

Yes, they did. And of course they never got any tax dollars and never will.

Maybe You want to read a book or two some time. Might help.

[RickshawJohnson]

11:15 AM on 07/12/2010

Bank of America paid back your tax dollars, and even gave you a profit on the loan months ago.

[JDogger]

11:24 AM on 07/12/2010

Geithner didn't go to jail. He was appointed Treasury Secretary!!!!!!!!!!!!!!!!!!!!!

[Scent]

12:51 PM on 07/12/2010

LOL

Yes, they did. And of course they never got any tax dollars and never will.

Maybe You want to read a book or two some time. Might help.

[castleblanca]

10:53 AM on 07/12/2010

To all B of A account holders, copy and paste this quote from the article and save it somewhere. Should you ever make a mistake in balancing your account use it right back at 'em!

Bank of America said the inaccuracies aren’t material and “don’t stem from any intentional misstatement."

[JDogger]

09:38 AM on 07/12/2010

Everyone's anger should be directed at the SEC, not B of A.
The real question here is why aren't the regulators regulating??? The same scenario unfolded with the housing crisis and CDO's. B of A and all the other banks aren't getting away with anything... UNLESS YOUR GOVERNMENT LET'S THEM.
If the SEC has decided not to impose a fine or file criminal charges, and you think they should, then your anger should be directed at the enforcers/regulators.

[Soulsurfer]

10:06 AM on 07/12/2010

Blame the cops, not the criminal? It's OK to cheat, the only crime is getting caught? Exhibit A in the decline of civilization.

[JDogger]

10:53 AM on 07/12/2010

Ranks right up there with many of Obama's appointees!
Geithner comes to mind:-)

[FoonTheElder]

10:40 AM on 07/12/2010

The corporation is responsible for the correctness of its financial statements. The corporation has the legal responsibility to see that they fairly represent the financial position of their company.

It's not the public accountants or government agencies who are responsible for catching every crooked manipulation of the corporation.

The problem with Bush/Cheney government is that they decided that they were going to let the corporations police themselves and that the government should agree with the corporations. When you elect people who want to drown government in a bathtub and nominate incompetent, corrupt, corporate cronies who ignore their job, why are you surprised when they fail. That was the self-fulfilling idea in the first place...Republicans govern badly and then complain that government doesn't do anything right.

[JDogger]

11:02 AM on 07/12/2010

So, if your check book has a mistake of 1/100th should the bank close your account and file crimainal charges? You are absolutely correct that the Corporation is 100% responsible for the accuracy of it's books. But if the mistake is non-material then it is non-material. If the number of $10 billion bothers you then I'll assume our Government's debt REALLY bothers you.
I can't wait to see there results of the audit of the Federal Reserve's books.

[NevaforLeadership]

11:13 AM on 07/12/2010

Let's get something really straight here.

In the list of rogues responsible for the banking meltdown, Clinton and his economic/financial trio, Greenspan, Rubin, and Summers, are way up on the list comapred to Bush. At the time, the head of the Commodity Futures Trading Commission attempted to introduce regulations into the OTC derivatives market. Clinton's trio dismissed, derided and demeaned her until she had to leave her job, while Clinton and his trio proactively saw to it that no regulation was introduced. When Bush was elected, he happily maintained that status quo.

Clinton was the first to actively promote home ownership for all, turning a blind eye to the net that caught up all those who could not afford homes. Again, Bush happily adopted the status quo.

Clinton and his trio have major culpability for these two prime reasons for the banking meldtown and subsquent recession.

[Gregory Foster]

09:21 AM on 07/12/2010

This is ridiculous!!! They're testing us people! First wall street "loses" $87billion and now BOA discovers $10.7billion misclassified debt?! Please! If they can hide loses and just tell us it was a computer error, what else do you think is going on?

[Aldyth]

08:53 AM on 07/12/2010

If any of us make a math error in our check register, we end up paying a fine.

If BOA makes an error in its accouting, do they end up paying a fine?

[mrportman]

11:31 AM on 07/13/2010

You only end up paying a fine if your error was so great that you spent more money than you had. BoA would be in trouble if the error was significant enough to sway the opinion of users of the financial information provided.