Bank of America Posts Adjusted Loss Excluding "Benefits" From Spread Blow Up

Tyler Durden's picture

In yet another episode of accounting gimmickry Groundhog Dayness, Bank of America reported a massively wonderful EPS number of $0.56, which obviously is more than 100% better than the expectation of $0.21.... Until one actually reads the press releases and finds that this number is nowhere near comparable to an apples to apples comparison. To wit: the reported net income number was $6.2 billion, which includes, "among other things, $4.5 billion (pretax) in positive fair value adjustments on structured liabilities, a pretax gain of $3.6 billion from the sale of shares of China Construction Bank (CCB), $1.7 billion pretax gain in trading Debit Valuation Adjustments (DVA), and a pretax loss of $2.2 billion related to private equity and strategic investments, excluding CCB. The fair value adjustment on structured liabilities reflects the widening of the company’s credit spreads and does not impact regulatory capital ratios." So netting out the CCB gain and the strategic investment loss leaves us looking at the two items entirely affected by the blow up in the company itself manifested by its soaring spreads: the $4.5 billion in structured liabilities adjustment and the DVA which add to $6.2 billion, which is.... what the company reported as its EPS! In other words, Bank of America had $0.00 EPS excluding for the accounting BS that is provisioning for buying "CDS on yourself." And since both of these adjustments flow through the P&L, the reported revenue of $28.45 billion (much better than the expected $25.92 billion) had to be adjusted $6.2 billion lower, and confirms that absent this most blatant accounting gimmick, the revenue was a huge miss. Yet despite a plunge in the company's NIM, a $1.7 billion reserve release, and a substantial plunge in BAC's provisioning for Rep & Warranties from $14 billion in Q2 to $0.3 billion in Q3, something which will again haunt BAC, Bank of America increased its staffing from 40.4 thousand to $42.1 thousand sequentially. Alas, that trends will not persist.

From the earnings release:

  • Headwinds of global economies, housing, interest rates and Eurozone debt crisis persist
    • Sales and trading results reflect challenging market environment
  • Total deposits increased
  • Loan growth remains muted

Selected numbers:

The lifeblood of the company - Net Interest Margin - goes from upper left to lower right:

  • Net interest income declined $754MM and net interest yield declined 18bps to 2.32%
    – Negative impacts in 3Q11 vs. 2Q11 include:
  • Faster amortization of purchase premiums due to faster modeled prepayments ($0.5B)
  • Negative asset hedge ineffectiveness incurred as part of our overall interest rate risk management activities ($0.6B in 3Q11 vs. $0.2B in 2Q11)
  • Positive contributions to NII from lower debt balances and rates paid on deposits more than offset reductions from declines in consumer balances and yields
    – Our overall interest rate risk position continues to be asset sensitive

Remember Sales and Trading? Well, forget it. Complete collapse across the board.

  • Sales and trading revenue of $2.8B declined $1.0B from 2Q11 and was down $1.7B from 3Q10
    • Results include DVA gains of $1.7B in 3Q11 compared to gains of $121MM in 2Q11 and a loss of $34MM in 3Q10. 12% of the 3Q11 DVA was  incurred in the equity business
  • 3Q11 impacted by adverse market conditions across fixed income products with extreme volatility in credit markets
  • Risk aversion has slowed customer activity as reflected in the reduction in VaR [from 229.2 to 163.7]

R&P and Warranty provisioning plummets:

Full presentation:


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Fips_OnTheSpot's picture

They got that wrong, it's not 0.56 EPS, but share-value 0.56 -- soon.

NewThor's picture

Have i mentioned that BoA is a really shitty bank?

Esso's picture

I think your valuation estimate is about 56 cents too high.

silver500's picture

The value of the bank is the present value of expected future bailouts.


Quaderratic Probing's picture

They should short themselves and profit from the ride to zero

Don Birnam's picture


09:03...BAC...+ 0.12/ + 1.99%.


Cassandra Syndrome's picture

Cook the Books, Bitchez

trampstamp's picture

I've never tasted shit before so can't compare :) j/k bud... had too. But you are right it smells like shit!

Paralympic Equity's picture

Tyler, did I got this right, they can gain two times (through DVA and adjustments) on the same shitty debt?

belogical's picture

I cetrtainly am not a balance sheet expert or a lawyer. However, I do not understand why a shareholder lawsuit has not been filed. Especially in the repo fraud. I know the SEC is not going to do anything but why some lawyer doesn't want to take a shot at it is beyiond me.

Mae Kadoodie's picture

Getting mired in the details is for losers.

trampstamp's picture

Ding ding ding we got a bankster!

Hansel's picture

I was always more interested in what bark was made out of on a tree. Richard Gere's a real hero of mine. Sting. Sting would be another person who's a hero. The music he's created over the years, I don't really listen to it, but the fact that he's making it, I respect that.

Snidley Whipsnae's picture

I am more interested in the fussing by squirrels and birds over the water and bird seed that goes on in my back yard than the inventive lies various zombie bank statements contain.

Problem is, the birds and squirrels in my back yard are not destroying the world economy, but US banks, in collusion with rotten regulators and politicians, are.

Seasmoke's picture

let any small business try these accounting gimmicks of cooking the books and keeping 2 sets of numbers and see what happens......and then they wonder why people have had enough and will occupy

ArkansasAngie's picture

I agree. 

OWS is about needing a new sheriff who knows who the bad guys are.

2012 Attorney General races should get elevated in stature.


traditionalfunds's picture

500m in litigation expenses. Nothing to see here. Step back into the bathtub sir.

abugarance's picture

hearing the Octagenerian just about to have another bath

bania's picture

Goldman shower I believe

Irish66's picture

Another FAZuluos report

JohnG's picture

Shifting long/short with options has made a killing for me.  For months. 

Works 'till it don't.

ThisIsBob's picture

Bonus expectations thus thankfully remain intact, I would imagine.

Hephasteus's picture

Revenue's not a huge miss. It's just occulted in where it comes from. The counterfeit money was delivered. Just had to say something different on where it came from.

ss123's picture

It's the monolines all over again.

Mentaliusanything's picture

they never bury the dead in the front yard, got to be way in the back.

Page 32 fine print will bury them and they know it. 

Disclaimers - Bitches

hp12c's picture

B o A would make a great Funeral director... They have the talent for making a corpse look pretty..

rokka's picture

They forgot to include reserved bailout money they will get soon. 

Snidley Whipsnae's picture

According to Jim Rickards if the Volker Rule is applied stringently, and Rickards believes it will be, all of the big zombie banks will be effectively nationalized and their sole purpose for existing will be to purchase whatever amount of US Ts the US Gov/Treasury/Fed demand of them.

Rickards went over the Volker Rule carefully and this is his take on the future of the zombies... They will, in effect, be the same as utilities and will be closely regulated. Playing in the sand box will be over. Blowing up the world economy, AGAIN, will be over... at least, until people forget what has happened and repeal the Volker Rule.

Whether this will come to pass remains to be seen.

If you want to see what Rickards has to say about it... google 'jim rickards new buyers entering gold market'... and, do not be misled by the title... more info about the future of zombie banks than gold discussion.


Snidley Whipsnae's picture

JohnG... Thanks for posting it.

I was told by email, long ago, by TPTB here, not to link anything to some sites.

Some sites tend to initiate lawsuits when their material is linked... as explained to me via email.

UGrev's picture

horse shit. You can link all day long.. you just cannot post an article in its entirety. You can do short quotes with citation and a link to be safe as well. 

Snidley Whipsnae's picture

I see your horse shit and raise you a fuck you! I know what email I received, what it says, and it remains stored in my GMail. I suggest you get your facts straight before inserting your fucking foot in your mouth!!!

Here is the text of the first of four email exchanges between TD and myself...

"Tyler Durden to me

show details Aug 10

Please do not copy and paste again anything from king world news"

Smiddywesson's picture

Yes, they make money off the number of visitors, so they love other sites to link, but not copy. 

JohnG's picture

© 2011 by King World News®. All Rights Reserved. This material may not be published, broadcast,

rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

dvsteenk's picture

Nassim Taleb currently on Bloomberg, interrupted so far two times by endless weather and webcam shots, advertising and "in-depth analysis" by the chicks on duty

In the two minutes he could speak (...and 30 minutes in the "interview" so far), he clearly stated that numbers reported by banks are completely irrelevant as they are no where near based on M2M valuations, saying that the only thing that is known is the bonuses that bankers reward themselves... and then he's being interrupted for the Goldman numbers... remarkably Taleb stays on his seat!

And how can a company that had several perfect trading quarters now have such a loss? What changed?



reader2010's picture

Those motherfuckers need EPS losses to bring back infinite QE.

TheFourthStooge-ing's picture

And how can a company that had several perfect trading quarters now have such a loss?

Goldman needs to show a loss so they can say, "see, we took a loss, which proves we don't run the world."

What changed?

It's easy to show a loss if your allocation for bonuses is 120 percent of what would have been profits.


El Gordo's picture

Zombie banks for Halloween this year?

Snidley Whipsnae's picture

This year the kiddies get mini Butterfingers... Last year they got mini Milky Ways... The way the economy is going next year they get a handful of popcorn... :)

TheFourthStooge-ing's picture

OT, but related to Halloween:

Have a warped sense of humor and looking for a good laugh? Go to a supermarket the week before Halloween and purchase two items (and nothing else): a bag of apples and a package of razor blades.


ZeroPoint's picture

You can add BoA to the long list of Chinese fraud stocks, although it's not Chinese. Me likey!!!



heyligen's picture

My disgust just got a 4.5 billion tax-free value adjustment. Sky-high already and still growing.

SwingForce's picture

On the other hand, why should US banks NOT report pretty flowers and sunny skies? Its a giant middle finger to the European "banks/sovereigns" that make up the EuroZone "partnership". The reason nothing is getting done in Europe is because they have no clue as to where to start. They don't know the totals of what they are working with, what they will need, nobody is telling anybody anything but nonsense. That's a financial system? 

Watson's picture


You might want to probe the report that BAC, at the request of its counterparties, has moved OTC derivative contracts to the FDIC-backed entity.

Forget for a moment the issue of BAC trying to implictly use deposit insurance (intended to protect J6P's checking account) to backstop BAC's own bets in the securities markets.
(Though it is encouraging that the FDIC seems to have noticed, and raised objections...the Fed won't be pleased).

Focus instead on *why* this might have happened.
Most OTC derivatives have a provision that on downgrades the collateral demand goes up, and this has been suggested as BAC's motive.
I suggest another:
Most OTC's also have a provision that on a sufficient downgrade (and BAC is pretty rubbish now for long-term deals), the in-the-money counterparty can force early termination (at third-party mark-to-market prices).
Now think about how much might be involved, and how it might be unfortunate if those losing contracts are, in BAC's books, netted against cash positions that (entirely legally, but very foolishly) BAC might not have marked-to-market.