Bank of America’s Profit Mainly Due to Recent Deals
By Binyamin Appelbaum
Washington Post Staff Writer
Tuesday, April 21, 2009
Bank of America said yesterday it earned $4.2 billion in the first quarter, the latest sign that the government is succeeding in stabilizing the banking industry.
The company’s profits came mostly from Merrill Lynch, the investment bank it purchased in the fall with financial aid from the federal government. Revenue from trading in financial products, including corporate debt and securities, has driven the renewed profitability of most large banks in the first quarter, even as retail banking operations continue to struggle.
. . . As with other large banks, Bank of America’s earnings benefited substantially from accounting rules.
The bank booked a profit of $2.2 billion on the decline in value of its own debt, which is allowed because the bank could now repurchase that debt at the lower price. Other banks, including Citigroup, also have claimed billions in profits under the same rule. Some financial analysts regard the technique as obscuring the true picture of a company’s health, because the companies have not actually repurchased the debt, so the gains could be reversed if the values rebound.
Anyone tired of liar-loans, fraudulent investment ratings, non-existent credit default swaps and ‘accounting-rule profits?’ Anyone who feels that lessons have been learned and these goliaths are just too big to fail has been flim-flammed. America is the world leader in reinventing reality.
Coming off the ropes of a 7,000 point drop in the Dow Jones Industrials, we are so eager for the bleeding to stop, so anxious for good news that it’s OK to shroud any old financial gimmick in the appearance of an end to it all. It reminds me of General MacArthur’s statement as he got his ass kicked off the Philippines in WWII.
“We are not retreating. We are advancing in a different direction.”
We won WWII and MacArthur famously came back, but he was a man made in the heroic mold and nowadays it seems we have taken to moldy heroes.