Banks

[GGal]

I'm glad that CW is under investigation for securities fraud, and the implication is that they did not disclose the true risk of certain loans....

More lending institutions will, or at least should, follow.....

One is a mid-sized bank that my husband bought stock in way back when for $2, it went up to high $20s, now is at $7......when all the rumors about subprime leaked, they sent shareholders a letter assuring them not to worry because they had no subprime mortgage loans since they sell all their mortgage loans of course.....but turns out they were up to their eyeballs in some big, bad loans to builders, especially in Atlanta...

But here is what I am really curious about. FDIC insured banks receive mandatory Federal Reserve audits every two years. The auditors come out and review their loans. The main thing they are looking for is does the bank have enough loan loss reserve booked to cover the risk.

Had my husband's bank properly disclosed the risk via bumping up loan loss reserves, he could have made an informed decision as to whether to sell the stock that now he is stuck with.

So what I'm curious about is why the Federal Reserve was asleep at the wheel on these bank audits, and what responsibility they will claim.

I don't want to offend anyone here who might be a Federal Reserve auditor, but I'm going to venture a guess that many of the auditors are fairly new and perhaps not the brightest and the best that the accounting world has to offer (since they are all at PWC, KPMG, E&Y, and D&T)....

I know that is what has happened in the last 5 years at XXX....many of the old brightest and the best have retired (except me, I have 5 years left, lol).....and they are being replaced by less than the brightest and the best...

[Jackbnimble]

G, I represent the less than brightest you talk about at XXX. These banks are audited each year by the Big 4 and the FDIC. None of these groups could see what was coming in housing and the debt markets. They use these convoluted models to value loans that held up for a long time but here lately were not indicative of the true underlying value in these loans. So I would say at the time the loan was valued the proper reserves were booked.
I think there is a difference in sub-prime loans and builders loans. Historically builders are leveraged up to their eye balls and any slow down in that market shakes a few out. This is more than a bump and more than a few are getting shook out. Some banks that had no exposure to sub-prime are feeling the effects of that market.
Your better half has more than tripled his money in this bank which is not a bad rate of return. (No I did not use a calculator). I think is is safe to say at all times most banks have money loaned to businesses that will fail. This includes builders and any other business out there.

In my never humble opinion there is no need to disparage fellow accountants for what has happened in the market. In the long run this should be good for banks and their investors, hopefully they will be cautious in there underwriting.

[GGal]

Xcuse me. First, all banks are not audited by the big four, many annual audits of banks are conducted by accounting firms other than the big four. Second, the subprime loans and the significant builder bad loans are linked. One of the bad loans my husband's bank made was to a builder in Atlanta who has two whole subdivisions of never lived in homes that were targeting the lower income subprime type customers, and they've been sitting empty and completed for almost two years......the bank execs knew long before we little people that the subprime mess was coming, yet they signed the manager's letters and allowed the inflated financial statements to be filed with the SEC, thus misleading the shareholders. Had the auditors conducted a quality examination, they would have smelled a rat. Too many auditors are surface feeders.

Third, when you tell me what there is no need for me to do or think, that's not "humble." Oh, but I see, you admit to never being humble. Good. Now just try to remember, if I want your permission to express my opinion, I'll ask for it. LOL.

[Fivetears]

L M F A O :nuts:
GGal got game. :D

[Steadygain]

..the bank execs knew long before we little people that the subprime mess was coming, yet they signed the manager's letters and allowed the inflated financial statements to be filed with the SEC, thus misleading the shareholders. Had the auditors conducted a quality examination, they would have smelled a rat.

http://money.cnn.com/2008/03/26/news/companies/new_century_financial.ap/index.htm

"New Century had a brazen obsession with increasing loan originations, without due regard to the risks associated with that business strategy," Missal's report said. "The increasingly risky nature of New Century's loan originations created a ticking time bomb that detonated in 2007."

In addition, the examiner found that New Century's accounting firm, KPMG LLC, enabled some of the improper accounting practices to continue.

I'd say you are one smart lady - and todays' news proves it.