A week ago it was Citi, which took farcical non-GAAP earnings through the rabbit hole when it revised its already reported Q3 earnings lower by $0.20 to, as described in "Algos Please Ignore: Citi Slashes Previously Reported Net Income Due To "Legal Investigations" Over FX Rigging Probe" and now it is that other bank which has made crime an ordinary course of business.
From the just released press release which sees its Q3 EPS revised down from $0.04 to -$0.04
Bank of America Corporation today announced an adjustment to its financial results for the third quarter ended September 30, 2014 to include additional litigation expense related to its foreign exchange business.
Subsequent to the company’s earnings announcement on October 15, and prior to the filing of the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, the company has been engaged in separate advanced discussions with certain U.S. banking regulatory agencies to resolve matters related to its foreign exchange business. As a result of those discussions, the company recorded a $400 million non-deductible charge and adjusted its third-quarter 2014 financial results to a net loss of $232 million or $(0.04) per share. There can be no assurance as to the ultimate outcome of these matters.
The company’s Quarterly Report on Form 10-Q, which is being filed today with the U.S. Securities and Exchange Commission, will reflect the adjustment.
Is this a surprise? No. Recall: "For Bank Of America, Crime Is Now An Ordinary Course Of Business"
Once upon a time banks made money in one of two ways: either by borrowing short and lending long, a/k/a the conventional banking way, or through investment banking, which includes advisory, underwriting and trading with the backstop of billions in deposits, aka the proto-hedge fund way.
Then things changed.
For a profoundly philosophical, if comically metaphysical essay, that uses several thousand excess words and footnotes to come to the miraculous conclusion that bank accounting is, get this, fickle, the following Bloomberg take should be an amusing way to kill a few extra hours. Philosophical ramblings aside, it is, of course, very easy to determine if a bank made or lost money, and that does not even involve looking at the cash flow statement. One looks at the Non-GAAP bottom line and excludes the "excluded", or added back items.
As a reminder, the reason non-GAAP exists in the first place, is to goalseek an already meaningless number to just a cent or two above Wall Street consensus, so as to kickstart the buying of the stock by headline scanning algos. Because EPS may be meaningless but stock-tied compensation/incentive awards are quite meaningful, and lucrative, to executives.
Still, even when it comes to the wizardry of non-GAAP, for a number to be somewhat credible, it has to follow a few basic guidelines, namely that in order for an expense or charge to be "excluded" from the bottom line, it has to fall within the "one-time", "non-recurring" category. Add it back too many times and the magic falls apart as even the mutually-accepted fabulation by circle-jerking ostriches that is non-GAAP. promptly evaporates.
Which is why we ask: why do Wall Street "analysts" continue to add back Bank of America's legal and litigation charges and settlements from its bottom line when calculating its non-GAAP EPS?
As the chart below clearly show, any myth that Bank of America's legal fees are "one-time" or "non-recurring" is by now long dead and buried. In fact, in 2014 they have never been greater!
How does this nearly $30 billion in legal "addbacks" over the past three years compared to the so-called Net Income Bank of America generated over the same time period? Here is the answer:
In short: between Q4 2011 and Q3 2014 Bank of America produced "Net Income" of $15.9 billion. However, the amount of added back "one-time, non-recurring" legal expenses is a stunning $28.9 billion: two of every three dollars, non-GAAP as they may be, comes from Bank of America engaging in criminal activity... and that's just the stuff it got caught for.
So perhaps an even more relevant question than how long will the EPS "addback" bullshit continue, is how long will the regulators and enforcers allow Bank of America to exist as an organization for which two-thirds of its "ordinary course business" is, for lack of a better word, crime?
And now we can add another $400 million of evil bank misdeeds because there was no actual carbon-based person behind these crimes. And as everyone knows by now, actually goes to jail for financial crime upon crime upon crime. Which also means that BofA has spent some $29.4 billion in just the past three years, to keep its 229,500 employees, but most the executives, out of prison: an insane amount of $128,104.57 per person.