Bank of America Pulls a $10.7 Billion Lehman-Esque Oopsie, Claims No Material Impact

Sunday, July 11, 2010 , , , 5 Comments

Oh that's precious. What sort of money does Bank of America have to claim $10.7 billion in misclassified cash non-material?


Bank of America Corp is beefing up its internal accounting controls after it incorrectly classified as much as $10.7 billion in short-term lending and repurchase deals for mortgage securities as sales, according to a letter filed on Friday with U.S. securities regulators.

The Charlotte, N.C.-based lender said the transactions -- spread over a three-year period -- were immaterial to Bank of America's earnings in a May 13 letter to the U.S. Securities and Exchange Commission, which was publicly filed on Friday.

The error was first disclosed in the bank's first quarter 2010 report, which noted the bank incorrectly accounted for some mortgage-backed securities as sales, rather than repurchase or short-term lending deals.

The first such error occurred on March 31, 2007, totaling $4.5 billion in securities. The largest misclassification was $10.7 billion in securities on September 30, 2008.

"The transactions did not have a material impact on the bank's earnings or balance sheet," said company spokesman Jerry Dubrowski.

Ahem PricewaterhouseCoopers, do you have something to confess here? Is it not your job to spot these sorts of errors BEFORE you sign off on BofA's financials?

Just curious.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


beebsblog said...

What I don't understand is why people aren't going to jail.

Every mortgage broker who ginned up the paper work ought to talk to a judge.

The ratings agencies ought to be put on a short leash for rating trillions in mortgage debt as AAA. Shit, I could rubber stamp AAA all day long.

So Congress won't let the Executive audit the fed. Fuck that, send in 100 FBI agents to collect the papers.

beebs, I know you are a chemist and not an economist nor accountant so let's explain this in terms you can understand...

$10.7 billion obviously isn't shit (that is my expert opinion coming from an accounting industry viewpoint). If it were, people would be going to jail. $10.7 billion, according to the mathletes, isn't "material" and therefore we should disregard this news and go back to our Cheerios and Starbucks because everything is obviously totally under control.

To you or I, peasants that we are, $10.7 billion is a metric shit ton of money but we need to shake off those feelings of doubt and accept that to Bank of America, PwC and regulators, the official diagnosis is that it ain't shit.

That's the only logical reason for why people are not going to jail. Just an ignorant guess.

beebsblog said...

JDA, you are correct. 10.7 billion smackeroos is a rounding error for Big Banks and Big Gubmint.

I guess Hank Paulson, Turbo-tax Timmy and Big BEN are going to get away with strip-mining our future. They should have their heads on stakes.


Anonymous said...

Hi I work in the industry and I think it’s important to note that SEC Chief Accountant James Kroeker testified nearly 2 months ago ( , “Based on the requests, no information has come to our attention that would lead the staff to conclude that inappropriate practices were widespread.” I think that the recent discovery that Bank of America and Citicorp both used balance sheet management, including the use of repo agreements, shows that this practice was, and is, widespread within the banking community.
The SEC must be blind if they cannot find that it is a common practice among banks. Just look at the facts, including data from the Federal Reserve Bank. In early April, the WSJ ( reported that the New York Federal Reserve reported that big banks were masking risk levels by lowering debt before public disclosure. It also highlighted banks' levels of short-term financing in the repurchase, or "repo," market.


Thanks for the input, you are correct. Let us only hope FASB comes up with some reasonable guidance before the sky starts falling again.

This is the last promise we got to address the situation:

In written testimony released by the U.S. House Financial Services Committee on Tuesday, FASB Chairman Robert Herz said the board would "work closely" with the U.S. Securities and Exchange Commission to decide whether any changes to accounting rules are necessary after accounting practices employed by Lehman Brothers Holdings Inc (LEHMQ.PK) known as "Repo 105" and "Repo 108" have come under fire

Brought upon (I would guess) by the outrage surrounding Lehman. But the unwashed masses tend to forget just as easily as they get worked up over these things.

Unfortunately so do guys like James Kroeker.

You said "The SEC must be blind if they cannot find that it is a common practice among banks."

You work in the industry, surely you can already testify as to just how blind the SEC is.

Should Bank of America be chastised for this behavior? Is PwC in trouble? Or do we not care because "everyone is doing it"?

I'm not sure at what point our regulators wake the fuck up but I hope it is sooner rather than later. By failing to issue guidance on the matter that clearly comes out against the practice, FASB might as well come out and endorse the behavior.