Major U.S. banks masked risk levels: report

Fri Apr 9, 2010 8:36am EDT

A Bank of America logo is seen before the corporate center in Charlotte, North Carolina January 19, 2010. REUTERS/Chris Keane

A Bank of America logo is seen before the corporate center in Charlotte, North Carolina January 19, 2010.

Credit: Reuters/Chris Keane

(Reuters) - Major U.S. banks temporarily lowered their debt levels just before reporting in the past five quarters, making it appear their balance sheets were less risky, the Wall Street Journal said, citing data from the Federal Reserve Bank of New York.

The paper said on Friday 18 banks, including Goldman Sachs Group (GS.N), Morgan Stanley (MS.N), J.P. Morgan Chase (JPM.N) Bank of America (BAC.N) and Citigroup (C.N), understated the debt levels used to fund securities trades by lowering them an average of 42 percent at the end of each period.

The banks had increased their debt in the middle of successive quarters, it said.

Citi, Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley were not immediately available for comment when contacted by Reuters outside regular U.S. business hours.

Excessive leverage by the banks was one of the causes that led to the global financial crisis in 2008.

Due to the credit crisis, banks have become more sensitive about showing high levels of debt and risk, worried their stocks and credit ratings could be punished, the Journal said.

Federal Reserve Bank of New York could not be immediately reached for comment by Reuters.

(Reporting by Sakthi Prasad in Bangalore; editing by Karen Foster)

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Comments (10)
navig80r wrote:
Hmmm, and who was the former president of New York Federal Reserve…? Naughty banks – here, leverage up a couple of trillion for us and reliquify. One of these days, Heisenberg will have his revenge and Uncle Ben’s instant printing press will yield to the law of unintended consequences.

Apr 09, 2010 4:24am EDT  --  Report as abuse
Psyllicon wrote:
Maybe they are all trying to get to that point where they are considered ‘too big to fail?’

Apr 09, 2010 4:28am EDT  --  Report as abuse
pixelwizard wrote:
Should this really be a surprise given the MASSIVE bailouts to the above banks!!!? Frankly, given just that, a lot more people at the head of such institutions should have gone to jail for FRAUD/NEGLIGENCE of PUBLICLY held institutions! And…to think that this was only going on in the last 2-3 years is frankly naive. I’ll bet all my money it was rampant emanating as far back as the bankruptcies of WorldCom and Enron!

Apr 09, 2010 4:32am EDT  --  Report as abuse
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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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