May 10, 2009

WSJ: Treasury’s Stress Test Results ‘Negotiated’ — Not To Mention Arbitrary, and Potentially Corrupt

It’s a whole new wrinkle on the old joke about accountants (when asked what 2 + 2 is, he or she replies, “What do you want it to be?”).

The Wall Street Journal reported yesterday that the reported results of the financial institution stress tests were negotiated:

Banks Won Concessions on Tests
Fed Cut Billions Off Some Initial Capital-Shortfall Estimates; Tempers Flare at Wells

The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation’s biggest banks shortly before concluding its stress tests, following two weeks of intense bargaining.

The overall reaction to the stress tests, announced Thursday, has been generally positive. But the haggling between the government and the banks shows the sometimes-tense nature of the negotiations that occurred before the final results were made public.

It’s also clear that the negotiations were over clearly non-trivial amounts:

At least half of the banks pushed back, according to people with direct knowledge of the process. Some argued the Fed was underestimating the banks’ ability to cover anticipated losses with revenue growth and aggressive cost-cutting. Others urged regulators to give them more credit for pending transactions that would thicken their capital cushions.

….. Bank of America’s final gap was $33.9 billion, down from an earlier estimate of more than $50 billion, according to a person familiar with the negotiations.

A Bank of America spokesman wouldn’t comment on how much the previous gap was reduced, though he said it resulted from an adjustment for first-quarter results and errors made by regulators in their analysis. “It wasn’t lobbying,” he said.

Wells Fargo’s capital hole shrank to $13.7 billion, according to people familiar with the matter. Before adjusting for first-quarter results and other factors, the figure was $17.3 billion, according to a federal document.

“In the end we agreed with the number. We didn’t necessarily like the number,” said Wells Fargo Chief Financial Officer Howard Atkins. He said the company was particularly unhappy with the Fed’s assumptions about Wells Fargo’s revenue outlook.

At Fifth Third Bancorp, the Fed was preparing to tell the Cincinnati-based bank to find $2.6 billion in capital, but the final tally dropped to $1.1 billion. Fifth Third said the decline stemmed in part from regulators giving it credit for selling a part of a business line.

Citigroup’s capital shortfall was initially pegged at roughly $35 billion, according to people familiar with the matter. The ultimate number was $5.5 billion. Executives persuaded the Fed to include the future capital-boosting impacts of pending transactions.

Given the size of the change at Citi, it seems odd that the Journal’s David Enrich, Dan Fitzpatrick and Marshall Eckblad mentioned it so late in their rundown.

It’s also more than a little strange that the name of Treasury Secretary Tim “Tax Cheat” Geithner, who is credited with designing the stress test, never appeared in the Journal’s coverage. In fact, the word “Treasury” doesn’t appear in Journal report, even though other sources, including the one to be cited next, indicate that the 150 regulators thown into the exercise were from the Treasury Department. But the Journal treated the stress test entirely as an enterprise of the Federal Reserve.

It’s all too easy to forget that the stress test is part of a bigger Geithner/Treasury plan that is very ominous to those who believe in free markets, as the UK Telegraph reminded us on Thursday:

Geithner’s stress tests likely to prove too little too late

….. The FSP (Geithner’s “Financial Stability Plan”) consisted of three parts – a “comprehensive stress test” of America’s largest financial institutions, the creation of a public-private investment fund, and up to $1 trillion (£668bn) to support consumer and business lending.

Somehow, I think that if a presidential administration other than Dear Leader Barack Obama’s was involved in negotiated financial reports like the stress tests have turned out to be, we’d be hearing a lot more about how “arbritrary” and “meaningless” the results are.

There’s also this: I know it’s considered impolite in the Dear Leader Era, but the fact that Treasury regulators were testing the health of banks onto which they have forced government investment, from which they are in many cases refusing repayment, and with which they are “negotiating” the terms of specific business transactions such as the Chrysler bankruptcy and the General Motors mess, presents conflicts of interest and independence, not to mention potential for breathtaking corruption, that no investor or taxpayer should tolerate. Oh well ….

Cross-posted at

Lost in Translation: Biz Press Reports Dollar Amounts of Toyota’s Losses, Not Its Sales

Filed under: Economy,MSM Biz/Other Bias,MSM Biz/Other Ignorance — Tom @ 8:42 am

ToyotaLogo0509.jpgHere are the first two paragraphs of Toyota Motor Corporation’s press release announcing its financial results for the year ended March 31, 2009 (most Japanese companies end their fiscal years on March 31; bolds are mine):

Tokyo – TOYOTA MOTOR CORPORATION (TMC) today announced operating results for the fiscal year ended March 31, 2009.

On a consolidated basis, net revenues for the fiscal year ended March 31, 2009 totaled 20.53 trillion yen, a decrease of 21.9 percent compared to the last fiscal year. Operating income decreased from 2.27 trillion yen to a loss of 461 billion yen, and income before income taxes, minority interest and equity in earnings of affiliated companies was a loss of 560.4 billion yen. Net income decreased from 1.72 trillion yen to a loss of 437 billion yen.

Across the board, the financial press reports I read translated the company’s reported losses expressed in yen into dollars ($4.4 billion in $US for the year, and $7.7 billion in the fourth quarter), but not its revenues (about $207 billion and $35 billion, respectively).

Why is that?

It may have something to do with the fact that Toyota, despite its considerable recent troubles, especially during most recent quarter, is leaving rivals Ford and General Motors in the rear-view mirror. That certainly distracts from the bailout blather about how GM’s and Chrysler’s crises were “unavoidable.”

Just two years ago, Toyota passed GM and became the world’s largest carmaker. In the most recent quarter, Toyota’s top line far exceeded Ford’s and GM’s ($24.8 billion and $22.4 billion, respectively).

If the fact that Ford outsold GM in the first quarter of 2009 is news to you, you’re not alone. The press has ignored the fact that Ford leapfrogged GM in the first quarter to become Number One in Detroit.

As to Toyota’s results, despite the figure’s presence in yen in the first sentence of its press release, none of the half-dozen reports I reviewed translated the company’s revenues into dollars:

  • Dow Jones translated the company’s quarterly and annual net losses. While it noted final-quarter revenues in yen, it didn’t translate the number.
  • MarketWatch also translated the company’s losses, and not its revenues.
  • AFP only noted that Toyota’s “revenues slumped 21.9 percent” for the year, and laugably claimed (as did MarketWatch) that “Toyota fared even worse in the quarter to March than General Motors, which said Thursday it lost six billion dollars.” GM’s quarterly loss was about 27% of sales; Toyota’s historic loss was about 22%. GM burned through $10.2 billion in cash during the quarter. Toyota also happens to have about $30 billion in cash and cash-equivalents on hand, $8 billion higher than a year ago.
  • The UK Telegraph noted a decline in unit sales, but did not deal with revenues.
  • A story carried at did not mention revenue dollars, but did uniquely point to the company’s stash of cash, and reminded readers that “Toyota is in much better shape than General Motors.”
  • A New York Times report by HIroko Tabuchi noted annual sales, but only in yen, while translating the company’s quarterly and annual net losses.

While there’s no denying that the largest loss in the 72-year history of the company is big news, it’s hard to believe that the growing disparity between its sales volume and that of its rivals is not. Maybe it will be news if, as seems pretty likely, Toyota outsells Ford and GM combined within the next few years.

Cross-posted at