The trick that turns banking losses into profits

By Deputy editor Tim Bennett Nov 08, 2012

Tim Bennett

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Banks use many accounting tricks to boost profits and fool investors. Tim Bennett reveals one of the biggest, and explains what investors should do about it.

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Published in Video tutorials | More articles by Tim Bennett

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  • 1. AM

    (12 November 2012, 12:08PM)  Complain about this comment

    I am unconvinced that your allegation of sharp practice agaist the banks for their practice of LLP. This is surely just income flow smoothing from year to year. The LLP in year 1 is prudent caution against possible future losses which can be legitimately returned in years 2 and 3 if the losses do not materialise. Clearly the practice could not continue indefinately as in your example the loss provison in year 1 is exhausred by year 3.

  • 2. Tim Bennett

    (12 November 2012, 01:32PM)  Complain about this comment

    AM - income smoothing is exactly what I have a problem with. When it comes to making and releasing provisions investors are largely at the mercy of the FD of a bank (auditors do their best but can never possibly know the business as well as he/she does). The businesses I have dealt with (not just banks) overprovide in bad years such as 2008 when no-one cares (since their results will be poor anyway) and release such provisions as their results pick up. You see the same thing with acquisition provisioning/goodwill (to name just one other area). Tim.

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