Warehousing Losses

Dear Contra_Folk,

Let us check in and see how the those quasi-debt securities, called “assets” with still no acceptable market price – but thankfully with a stroke of an Amendment pen – can become “loans” held against all assets… forever more and not written off against income at disposition like everyone else.   FMV investment losses adjusted to become “loans” is a headline worthy story for some.

So with yesterday’s Fedsury’s TaffyDaffyTarp “Data Dump” recipient list stating 10-20% collateral loan requirement terms on these type of assets deposited with the Fed – at only 80-90% of FMV margin – begs the next question.

Who is holding those undeclared “loan assets”, FMV losses that are now “held not available for sale” type portfolios classification with 80%+ embedded Fedsury instilled hair cuts (read losses).  So instead of taking a huge quarterly loss in the past (’08 had insolvency issues with that idea), the idea then was to take on a big new portfolio of  “0% impaired loans held till maturity and beyond” instead.  The end result being a loan losses amortized slowly forever… hopefully written up.  But that is not turning out to be the case, with housing declines (foreclosuregate) and low emergency rates compounding the many hidden issues.

End result is instead of taking a loss on the investment, you just store it.  That should weigh heavily on forward earnings considering the untold leverage possibilities.

For we see, deep into the last few pages of the dark notes to the financial statements the following disclosed bankster/audit game plan :

In August 2009, the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA) amended CICA Handbook Section 3855, Financial Instruments – Recognition and Measurement and CICA Handbook Section 3025, Impaired Loans (the 2009 Amendments). The 2009 Amendments changed the definition of a loan such that certain debt securities may be classified as loans if they do not have a quoted price in an active market and it is not the Bank’s intent to sell the securities immediately or in the near term. Debt securities classified as loans are assessed for impairment using the incurred credit loss model of CICA Handbook Section 3025. Under this model, the carrying value of a loan is reduced to its estimated realizable amount when it is determined that it is impaired. Loan impairment accounting requirements are also applied to held-to-maturity financial assets as a result of the 2009 Amendments. Debt securities that are classified as available-for-sale continue to be written down to their fair value through the Consolidated Statement of Income when the impairment is considered to be other than temporary; however, the impairment loss can be reversed if the fair value subsequently increases and the increase can be objectively related to an event occurring after the impairment loss was recognized. As a result of the 2009 Amendments, the Bank reclassified certain debt securities from available-for-sale to loans effective November 1, 2008 at their amortized cost as of that date. To be eligible for reclassification, the debt securities had to meet the amended definition of a loan on November 1, 2008. Prior to the reclassification, the debt securities were accounted for at fair value with changes in fair value recorded in other comprehensive income. After the reclassification, they are accounted for at amortized cost using the effective interest rate method.
Any write downs of these “loans” yet? Nope. Never. Just reduced provisions for credit losses pumping EPS along with no real trading growth, no banking growth, but just huge frickin’ mutual fund fee management income along with equally disgustingly huge frickin’ service fee incomes – both of which will be under attack going forward in a competitive environment.

Holding My Breadth,


About ContraManFund

Fictional (maybe not if you are an accredited investor) trading of a long/short contrarian-driven investment model portfolio based upon current economic environments and counter-intuitive trends. Legal Disclaimer The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions. NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES. The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility. Please consult your own investment advisor before making any investments anywhere, and always do your own due diligence before undertaking any individual investment.
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