Mark to Market Rules-

Friday, April 3, 2009
FASB Rules Won't Make Banks Money

FN: Yup. Reality vs Fantasy. Reality always wins… eventually.

Bank Stocks Won’t Get Lift From FASB, Goldman Says (Update1): “The relaxation of fair-value accounting rules won’t prevent bank shares from falling because growth in bad loans is accelerating, according to Goldman Sachs Group Inc.

“Our core view is that banks will not bottom until underperforming asset growth decelerates,” Richard Ramsden, a New York-based analyst at Goldman Sachs, wrote in a report today. “Loans are going bad faster than banks earn money.”

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Delinquent loans are increasing at a 3 percent annual rate industrywide, compared with a 2.5 percent rise in earnings before setting aside money for bad loans, Ramsden said.

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U.S. regulators may force Bank of America, Citigroup and at least a dozen of the nation’s biggest financial institutions to write down as much as $1 trillion in loans, twice what they’ve already recorded, based on Federal Deposit Insurance Corp. auction data compiled by Bloomberg.

Banks failing Federal Reserve evaluations of loans this month may be ordered to make sales worth as little as 32 cents on the dollar, according to FDIC data. That would be less than half of the 84 cents on the dollar the Treasury Department suggested was a possible purchase price. Some of the bank- insurance agency’s auctions brought 0.02 cent on the dollar.

Lower valuations would lead to new writedowns and capital injections from the $134.5 billion remaining in the Troubled Asset Relief Program, Nobel Prize-winning economist Joseph Stiglitz said.”