MarketNeutral
9th April 2010, 01:26 PM
Major American banks, including Citigroup and Goldman Sachs, temporarily lowered their debt in the past five quarters before reporting it to the public in order to mask risk levels, says a media report.
The Wall Street Journal has reported that major banks masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public.
The report is based on data from the Federal Reserve Bank of New York. "A group of 18 banks - which includes Goldman Sachs Group Inc, Morgan Stanley, JP Morgan Chase & Co, Bank of America Corp and Citigroup Inc - understated the debt levels used to fund securities trades by lowering them an average of 42 per cent at the end of each of the past five quarterly periods," the daily said.
According to the publication, these banks, that publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters. Extravagant borrowing by banking firms was one of the main reasons for the ravaging financial meltdown, that saw the failure of Lehman Brothers and Bear Stearns, among others.
The Wall Street Journal noted that since the meltdown, banks have become more sensitive about showing high levels of debt and risk, worried that their stocks and credit ratings could take a beating. "That practice, while legal, can give investors a skewed impression of the level of risk that financial firms are taking the vast majority of the time," the report said.
http://business.rediff.com/report/2010/apr/09/us-banks-reduced-debt-levels-to-mask-risks.htm
The Wall Street Journal has reported that major banks masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public.
The report is based on data from the Federal Reserve Bank of New York. "A group of 18 banks - which includes Goldman Sachs Group Inc, Morgan Stanley, JP Morgan Chase & Co, Bank of America Corp and Citigroup Inc - understated the debt levels used to fund securities trades by lowering them an average of 42 per cent at the end of each of the past five quarterly periods," the daily said.
According to the publication, these banks, that publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters. Extravagant borrowing by banking firms was one of the main reasons for the ravaging financial meltdown, that saw the failure of Lehman Brothers and Bear Stearns, among others.
The Wall Street Journal noted that since the meltdown, banks have become more sensitive about showing high levels of debt and risk, worried that their stocks and credit ratings could take a beating. "That practice, while legal, can give investors a skewed impression of the level of risk that financial firms are taking the vast majority of the time," the report said.
http://business.rediff.com/report/2010/apr/09/us-banks-reduced-debt-levels-to-mask-risks.htm