This week’s real estate headlines included record-breaking profits from some key banks.
This week’s news is really no surprise, we all knew that the banks weren’t really losing money hand-over-fist, despite the amount of short sales and foreclosures they’ve been processing.
The banks reporting record-breaking 2010 profits:
JPMorgan Chase Posts $17.4B Profit for 2010: An increase of 48 percent compared with $11.7 billion for the prior year.
Citi Reports Profit of $10.6B in 2010: That compares to a loss of $1.6 billion for the 2009 fiscal year. During the last three months of 2010, Citi posted net income of $1.3 billion.
Wells Fargo Reports Record Quarterly and Full Year Profit: Wells Fargo reported net income of $3.4 billion in Q4, up 21 percent from the same period a year earlier. For all of 2010, they earned $12.4 billion, compared to $12.3 billion in 2009.
And, the only bank reporting negative results thus far:
Bank of America Loses $2.2B in 2010: BofA has reported that it lost $2.2 billion in 2010. During the fourth-quarter period, BofA posted a net loss of $1.2 billion, which included a goodwill impairment charge of $2.0 billion in its home loans and insurance division. Had it not been for this charge, Bank of America says it would have earned $756 million in Q4. So, let’s see… a total loss for the year of $2.2 billion and $2.0 billion of it was a paper loss in the form of goodwill!
Alrighty then… does that really mean that some banks are making killer profits while others are eating dirt, or is this all just a bunch of meaningless paper-shuffling? Well… likely a bit of both… read on…
The most conservative accounting guidelines, the ones that banks and other companies have to follow for their financial reporting, state that the full value of an asset should be written off as soon as it is known to be a non-performing asset. So, all those loans that were in default in 2009 were written off in 2009. Thus the recovery of those loans, either through short sales or foreclosures, were pure profit in 2010. Same with the goodwill write-off of $2 billion for BofA during 2010, that is purely a paper transaction, not a cash-in-the-bank transaction.
Why do they do this? Who knows… a bunch of suits in some windowless conference room in an accounting office decided that these were the rules to follow, and so the banks must do so. HOW they follow them, as in how aggressively they write off non-performing loans, is another question, but the WHY is because of the accounting rules and so-called conservatism.
Do you think it’s an accident that the banks can have an awful year, both because of poor performance and aggressive write-offs, followed by a stellar year with record-breaking profits? Nope. It’s purely in the planning. It’s less painful to make a bad year worse than it is to have one bad year followed by another, so they push all of the write-offs into the bad year so the recoveries can show as pure profit in the following year.
So, what do you believe? Well, certainly not the headlines or the summary financial statements, because all of the gory details will be hidden.
Ahhhhh… the sweet smell of money… let’s just say that the banks are basking in it again, and lots of it!
Santa Clarita Realtor Linda Slocum is a Certified Distressed Property Expert (CDPE) and Certified Residential Specialist (CRS) specializing in Santa Clarita residential real estate, foreclosures and short sales. You can reach her at 661.670.0349 or at Linda@SantaClaritaRealEstateBlog.com. To search for Santa Clarita homes, use our neighborhood search tools or visit HoneyStartPacking.com.
January 22, 2011
Santa Clarita Real Estate