There’s nothing like a little magical math to make banks’ financial woes go away.
Bank stocks have surged in recent weeks, a sign that investors are betting the worst of the financial crisis is over. But in reaching this conclusion, the market has chosen to ignore some creative accounting banks are using to bolster their finances.
Lots of fuzzy math was trotted out during the just-ending earnings season to goose profits or narrow losses, and it will show up again as banks look to shore up their capital to meet requirements under the government’s “stress tests.” The tactics are perfectly legal, but they make the banks look healthier than they really are.
“Investors who have been pleasantly surprised by the recent results could find themselves equally bothered later on when they discover plenty of unpleasant things,” said Martin Weiss, who runs the investment firm Weiss Research Inc.
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