I don’t know if you caught the Bloomberg article about the $35 billion in missing writedowns, but I thought it was about time I exposed it. Bloomberg news says:
Banks and securities firms, reeling from record losses resulting from the collapse of the mortgage securities market, are failing to acknowledge in their income statements at least $35 billion of additional writedowns included in their balance sheets, regulatory filings show.
Citigroup Inc. subtracted $2 billion from equity for the declining value of home-loan bonds in its quarterly report to the Securities and Exchange Commission on May 2 without mentioning the deduction in the earnings statement or conference call with investors that followed. ING Groep NV placed 3.6 billion euros ($5.6 billion) of negative valuations in its capital account, while disclosing only an 80 million-euro depletion to income.
The balance-sheet adjustments are in addition to $344 billion of writedowns and credit losses already reported on the income statements of more than 100 banks. These companies have raised $263 billion from sovereign wealth funds, their own governments and public investors to shore up capital. The balance-sheet writedowns also reduce equity, which needs to be replenished. Adding the $35 billion leaves the banks with a $116 billion mountain of losses to climb.
-Bloomberg News, Banks Keep $35 Billion Markdown Off Income Statements, 19 May 2008
I’m sorry, but I can’t help but see this as a sinister development. Obviously, those companies that have not written this stuff off are in deep trouble when the Commercial Real Estate (CRE) piper comes due. Maybe Citi, Merrill, and UBS are the ones who are sitting pretty and everyone else is holding their breath. I doubt it. But, what I do know is that the regional banks have a lot of CRE and construction loans on their books. When the 2nd wave hits in the US, the regionals will get hammered.
See also: Credit Crisis Timeline for a full list of writedowns and capital raising by institution and a timeline of the credit crunch.