Executive summaries of The Accounting Wizardry Behind Banks Strong Essay

Executive summaries of The Accounting Wizardry Behind Banks Strong Earnings - Essay Example This followed after a further review of the latter. It was noticed that up to 31% of JPM’s profits of the financial year 2013 averaging $5.6 billion and 10% of WFC’s profits gained the same year amounting to $2.2 billion were not realistically earned. That money accrued came from the two bank’s loan-loss reserves. Loan-loss reserves, as mentioned, are set aside by the banks’ lenders given a financial crises is prevalent or when the U.S. economy is on the worst side. This goes hand in hand with the inflation projections on the economy with consumers experiencing hard times in financing their mortgages, credit card bills and other loans. Evidently, according to Josh Rosner, a Graham Fisher industry analyst based in New York, running out of reserves makes it in order to cuts costs on loans. It is imperative to note that one of the effects of this is the depreciation in the growth in revenue. Bank of America (BOA), which is ranked fourth among the largest American banks, flaunts turning losses into profits as a result of offsetting the loan-loss reserves. Since 2010, BOA had accrued losses of up to $11.8 billion, but from embracing change, it has surpassed all the setbacks and seen profits up to $11.4 billion on the better side. Additionally, Citigroup (C), which reported enormous profits of $40.4 billion about the same time, would have gained half of what their income was disregarding the accounting benefits. Evidently, when BOA was relying on reserves, profits were not well off in comparison to when they would not have used the boost from the reserves. In 2009, BOA would have realized profits of up to $55 billion were it not for the $48.6 billion reserve money they owed. On the same breathe, profits from other banks, which relied on their reserves during inflation were affected accordingly. It was noted that despite bank earnings poor performance, investors notably still embraced