By Marian Wang, ProPublica
In a blog entry over the weekend, John
Hempton (once dubbed “financial
blogger extraordinaire“) explains
that before there was Lehman Brothers’ now-maligned maneuver called “Repo
105” … there were, well, a lot
of other banks also trying to do the very same thing.
Such as
Bank of America, for instance.
As you may recall, Repo
105 is the accounting maneuver
Lehman Brothers used to move billions in assets off its balance sheet,
giving the appearance of greater liquidity, less risk, and therefore a
healthier company profile.
Hempton runs us through some numbers
from Bank of America’s 2006
annual report. See below:
| (US dollars – millions) |
Q4 2006 | Q3 2006 |
Q2 2006 | Q1 2006 |
| Average total assets |
1,495,150 | 1,497,987 | 1,456,004 | 1,416,373 |
| End period total assets | 1,459,737 | 1,449,211 | 1,445,193 | 1,375,080 |
| end period less average assets |
-35,413 | -48,776 | -10,811 | -41,293 |
In each of these years, the bank’s assets at the end of the quarter
were lower than its average assets throughout the quarter. This had been
happening for a while, according to Hempton. But if the bank was moving
its assets off its balance sheet, where was it moving them to? Hempton
found the counterparty he believes was assisting Bank of
America — Japanese bank Mitsubishi UFJ, which ended each quarter with
higher assets than its average throughout the quarter.
Reuters
blogger Felix Salmon points out that the numbers we’re talking about
here are
big — on par with Lehman’s Repo
transgressions.
I put in a call to Bank of America, and the media
rep there told me he needs “to talk to a number of people,” seeing as
the bank will “want to be thoughtful about it.” I’ll update as more
information comes in, but given all the financial insiders talking about
how Repo 105 was an “old
trick,”
this subject is one to keep watching.
Update:
Tuesday
afternoon, Bank of America’s media rep Scott Silvestri responded to my
inquiries with this statement:
“Efforts to manage the
size of our balance sheet are routine and appropriate, and we believe
our actions are consistent with all applicable accounting and legal
requirements.”
My only thought is that this is very
similar to what Lehman’s auditors, Ernst & Young, said in response
to criticism about their review of Lehman’s accounting, right after Repo
105 hit the news earlier this month. Here’s what the auditor’s
spokesman, Charles Perkins, said
at the time:
“Our
opinion indicated that Lehman’s financial statements for that year were
fairly presented in accordance with Generally Accepted Accounting
Principles, and we remain of that view.”