NEW YORK (TheStreet) -- "Window dressing" is a cute term for something with the intention to deceive investors and regulators, but such is the way of financial firms' accounting practices.
But it was clear that there were a ton of assets and liabilities hiding out there that banks hadn't necessarily been reserving capital against or informing investors about appropriately. After the Lehman Brothers report came out in March, everyone was all aflutter about the "Repo 105" tactic involving off-balance sheet items. In Repo 105, banks "sell" assets through QSPEs with the intention of buying them back soon after. But instead of being classified as a loan, the transaction is considered a sale. Therefore, banks don't have to hold reserves against the possibility of default on the underlying assets, or on the loan of those assets to another entity. Repo 105 is a "window-dressing" tactic, usually performed near the end of a quarter so that bank balance sheets can appear stronger than they actually are. Lehman had used Repo 105 to move $50 billion in assets off balance sheet, according to the examiner's report. Over the weekend, word surfaced that Bank of America (BAC) improperly considered up to $10.7 billion worth of ... let's call it "stuff" as assets rather than loans. For investors, this is not really a big deal. Bank of America has $2.3 trillion in assets and said that the accounting issues -- which related to six trades involving mortgage-backed securities in its capital markets business from 2007 to 2009 -- were "immaterial" to reported results over that time. What's more important for investors to find out is why did Bank of America and other firms even bother with Repo 105 if it was so immaterial, and what happened to all the other off-balance sheet assets that banks had sitting around up until the beginning of this year? Loading Comments... 1 2 3 Last » Next › adsonar_placementId=1341527;adsonar_pid=879768;adsonar_ps=-1;adsonar_zw=600;adsonar_zh=280;adsonar_jv='ads.adsonar.com'; Loading Comments... 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