from Bloomberg:
Citigroup posted a $2.5 billion gain because of an accounting change adopted in 2007. Under the rule, companies are allowed to record any declines in the market value of their own debt as an unrealized gain.
Accounting Changes
The rule reflects the possibility that a company could buy back its own debt at a discount, which under traditional accounting methods would result in a profit. Critics say a company in distress is unlikely to realize the gains, and would have to reverse them eventually if it recovers.
Such reversals probably contributed to a first-quarter loss at New York-based Morgan Stanley, the Wall Street Journal reported April 8.
Citigroup, one of 19 U.S. banks gearing up for the release of “stress tests” run by the Federal Reserve, has quadrupled on the New York Stock Exchange since falling to an all-time low of $1.02 on March 5, in the wake of the company’s announcement that as much as $52.5 billion of preferred stock would be exchanged for common shares to bolster the bank’s equity base.
from NYT:
Goldman’s explanations sometimes do not ring true, even if they are. When it announced its profits this week, it buried an important fact in the tables on page 10 of a news release, and did not mention it in the text of the release. That fact was that Goldman had lost a lot of money in December, which would have been part of the quarter had the firm not changed its fiscal year. As a result, that loss does not show up in any quarterly number. Goldman won’t say if a December-to-February quarter would have been profitable.
Was Goldman’s disclosure misleading? Legally, no. There was full disclosure. But the existence of the orphan month, with its big loss, was largely overlooked in the initial news stories. When it was reported later, Goldman was left looking as if it had tried to pull a fast one.
