Tag Archives: financial statements

They Said That? 12/16/15

Abengoa is a Spanish firm in the renewable energy business that slurped up numerous subsidies, including $230 million from the US government, before it filed in November for preliminary protection from creditors. Absent a last minute lifeline, if will file for bankruptcy, the largest ever in Spain. Now check out the following:

Only weeks before the company hit the wall, Standard & Poor’s upgraded its long-term rating on the company, saying it expected it to “execute various actions to reduce debt over 2015.”

So once again a ratings agency didn’t know what was going on. How about the auditors?

And the company’s auditor, Deloitte, didn’t express any alarm about Abengoa’s financial situation until November 13, just two weeks before the company announced that it was seeking preliminary protection from creditors.

How about Pepe Baltá? Who? Pepe Baltá, a 17-year-old secondary school student in Barcelona who examined Abengoa as his economics project last year.

Baltá noticed serious flaws in the company’s accounting. “If it does not act soon, there is a strong risk Abengoa will go into bankruptcy,” he wrote in his 18-page paper, titled “Analytical Report on Abengoa, 2012 and 2013.”

“I have some accounting knowledge,” Baltá, now 18, told the Spanish daily El Mundo, “and Abengoa’s accounts did not seem to add up. There was a lot of debt and few active assets compared to fixed ones. The big surprise was that negative profits were being converted into positives. I didn’t understand how they could do that.”

All excerpts from: http://wolfstreet.com/2015/12/15/spains-biggest-bankruptcy-ever-hits-banks-mexico-brazil-descends-into-bitter-farce/

Evidently the good folks at S&P and Deloitee did understand how negative profits could be converted into positives. They must have been graduates from Spain’s equivalent of the Ivy League.

The Day the Spineless FASB Accountant Weenies Agreed to Allow Wall Street Banks to Report Fraudulent Financial Statements, from The Burning Platform

This article may be a little long on hyperbole and rhetorical flourishes, but its history and the effect of changing from “mark-to-market” accounting to “mark-to-model,” or as it became known in the financial trenches: “mark-to-make-believe,” is correct. To this day, it is impossible to determine exactly what US and European bank assets are actually worth, but on a mark-to-market basis, they may well be insolvent. That also applies to the Federal Reserve, as the article implies. From theburningplatform.com:

The captured corporate MSM is celebrating the six year anniversary of when the stock market bottomed in March 2009. They will spin a false narrative of Bernanke, Obama and Geithner saving the world with TARP, QE, and the $800 billion Porkulus bill. What great heroes. Bernanke now gets $300,000 for a lunchtime speech at Bank of America gatherings. He is raking in north of $10 million per year now. He made $200,000 per year as the Fed Chairman. His wisdom must be on par with Jesus Christ to get $300,000 for a one hour speech.The millions he is getting paid by the Wall Street banks for speeches isn’t a payoff. Right?

Bernanke and Geithner stopped the market from falling in March 2009 by threatening the accounting geeks at the FASB and forcing them to allow fraudulent reporting by the insolvent Wall Street banks. The crisis ended – precisely – on March 16, 2009, when the Financial Accounting Standards Board abandoned FAS 157 “mark-to-market” accounting, in response to Congressional pressure from the House Committee on Financial Services and threats from Bernanke and Geithner on March 12, 2009. That change immediately removed the threat of widespread insolvency by making insolvency opaque. Mark to fantasy was born. Profits for everyone!!!

The fix was in. Every Wall Street bank was insolvent in March 2009. Citicorp and Bank of America were dead. There were hundreds of billions in worthless toxic mortgage securities, derivatives, auto loans, and credit card debt sitting on their books. FAS 157 required them to price those assets at what they could sell them for in the market. You remember free market capitalism? Something is worth whatever an independent party is willing to pay. The fat cats love free market capitalism when they are making billions. Not so much when they blow up the financial system and are faced with the consequences of THEIR actions.

The Wall Street banks were leveraged 30 to 1. Therefore, a 4% loss on their portfolio meant they were bankrupt. They were all bankrupt, and should have been liquidated in bankruptcy. That is why we have bankruptcy laws. But here’s the rub. Jamie Dimon, Lloyd Blankfein, the other Wall Street executives, billionaire investors, and many other very rich men would have borne the losses. That was unacceptable to the ruling oligarchs. They told their puppets – Bernanke & Geithner – to pressure the FASB into changing the accounting rule, so they could value their assets at whatever number they chose. The puppets did as they were told and the cowering mangy curs at the FASB reversed course.

All of a sudden, the Wall Street banks were miraculously solvent, making billions, paying themselves massive bonuses, rigging the markets, and enjoying the fruits of 0% interest money from Bennie and the inkjets. Ignore the blather you will see and hear about the saving the world bullshit. It was the pussy accountants at the FASB that “saved the bankers”. The people were fucked over and continue to be fucked over by the Fed and their Wall Street owners.

And after six years, if you applied mark to market accounting again, the Too Big To Trust Wall Street banks would still be insolvent. In addition, the Federal Reserve bought trillions in toxic assets, that sit on their balance sheet. They are currently leveraged 60 to 1. A 2% loss on their $4 trillion portfolio would make them insolvent.

Ca[n] you spell PONZI?


To continue reading: Wall Street Banks’ Fraudulent Financials

The WSJ Looks At “Non-GAAP” Earnings, Is Horrified By What It Finds, from Zero Hedge

From Zero Hedge, 1/8/15:

There is a reason why, when looking at S&P 500 earnings, we only care about GAAP numbers: the reason is that any non-GAAP “data” has become as meaningless as “adjusted EBITDA” – a goalseeked, procyclical placeholder which gives zero indication of the true financial state of the company and is merely a propaganda tool used by management and its preferred investment bank to raise capital or its stock price (and hence, equity-linked executive compensation) to naive investors…

…Well, we are delighted that finally others too are starting to look at the real gimmicks used and abused by corporations everywhere to “report” better than expected numbers. Enter the WSJ, which came, saw at Non-GAAP “numbers”, and was horrified to find the costs companies are “stripping out of those measures to enable themselves to show profits seem to be getting ever more eyebrow-raising.”

For anyone who spends any time examining financial statements, or reading Zero Hedge, this is not news. However, as is so often the case, the mainstream media has now blessed a “truth” long ago uncovered and discussed on non-mainstream web sites. The simple truth here, for those eleven people who still do fundamental analysis of companies’ financials, is that reported numbers, especially those which are some company-designed metric, have to be taken with a shaker of salt. But never mind that, what’s the Fed going to do next?

For the rest of the Zero Hedge article: http://www.zerohedge.com/news/2015-01-08/wsj-looks-non-gaap-earnings-horrified-what-it-finds