Marketplace Scratch Pad

The banks sure look pretty, don’t they?

Scott Jagow Apr 16, 2009

This morning, JP Morgan continued the parade of attractive bank profits — $2.1 billion for the quarter. Not only that, but the bank’s CEO, Jamie Dimon, said he no interest in selling any “toxic” assets through the Treasury’s public-private partnership. In fact, he said “toxic” assets aren’t a problem at all!

As Clusterstock points out, that statement is coming from a bank that holds 10% of all mortgages. Foreclosures are still climbing. These mortgage-backed securities continue to be worth absolute zero compared to when they were purchased, and yet, Dimon says they aren’t a problem.

This means they aren’t a problem because they’ve been revalued and sprinkled with magic fairy dust under the new accounting rules. Or it means they are a problem, but there’s absolutely no reason why JP Morgan is going tell the world about it. They’re buying time, hoping the valuations will match up long term.

Wells Fargo’s doing it too. Bloomberg’s Jonathan Weil took a close look at the bank’s latest numbers:

Look at Wells’s Dec. 31 balance sheet, and you’ll see a $109.8 billion line item called “other assets.” What’s in that number? For that breakdown, you need to go to a footnote in Wells’s financial statements. And here’s where it gets comical.

The footnote says the largest component was a $44.2 billion bucket that Wells labeled as “other.” Yes, that’s right: The biggest portion of “other assets” was “other.” And what did this include? The disclosure didn’t say.

Hiding, ducking, waiting. The banks are making money, thanks to all the free government loans they’ve been getting, and a lot of homeowners are refinancing. But there’s very little other lending going on, according to the Treasury Department.

The ugly stuff on the bank books has presumably been dolled up. They’re just hoping the mascara doesn’t eventually run all over everything else.

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