The results of the top US banks stress tests is due out on Thursday. The progress made in the sector most notably Goldman Sachs first quarter results could come to an alarming halt if these figures are not taken well by the markets.
The sensitive information is being relayed all at once to avoid a run on any particular bank. However, there will certainly be fallout and a dividing line between those who will need further capital and those who don’t will inevitably be drawn.
What is more interesting is what the stress test involved. If it was not robust and did not include off balance sheet assets then this whole procedure is effectively pointless. The financial skulduggery of the last decade has meant that the stock market quoted element of the bank is not the only part of it’s operations.
For instance Citigroup has assets of around $2.2 trillion but has another $1.1 trillion off balance sheet. Effectively meaning that Citigroup is really 50% times larger with 50% more liabilities than it’s share price would suggest. Oh yes, you also can’t find out what these assets are either, they are simply not accountable, therefore they don’t show up in the accounts.
These off balance sheet accounting practises have hidden risk for a decade now, the regulators have had no access to this world, indeed they didn’t even seem to realise it existed. If progress is to be made then these assets must be included, for better or for worse. Not to do so would be equivalent of sweeping the problems under the accountancy magic carpet.
http://uk.reuters.com/article/businessNews/idUKTRE5440OG20090505
http://www.bloomberg.com/apps/news?pid=20601087&sid=aiw0TbO.lTsM&refer=home
http://globaleconomicanalysis.blogspot.com/2008/07/citigroups-11-trillion-in-mysterious.html
