5 'Noisy' Banks and What They Really Earned
Mosby says that in the current environment, with plenty of asset dispositions, merger activity, and market turmoil, "you want to make sure you don't react to the reported number too quickly. The first thing we do is sift through the release and try to be a little more patient, because a lot of the moving pieces, once you get them isolated, bring you to the real operating results. You need to do a little diligence when the earnings numbers come out."
For banks benefitting from discount acquisitions in the current distressed environment for financial companies valuations, bottom-line results will be padded with bargain purchase gains or discount accretions, and Mosby says 'you must wade through the impact, as that boils off and determine how much the bank can replace in pricing."
When second quarter results are announced each July, goodwill accounting always comes to the fore, since most banks test the valuation of previous acquisitions, to determine if write-downs are necessary, on an annual basis, during the second quarter. Over the past few years as bank valuations have tanked, there have been very significant second-quarter non-cash goodwill write-downs, which really do nothing but confuse investors.
Mosby says that after the "abnormal significant shift in the value of financial service companies" over the past few years, most of "the goodwill that needed to be written off to reflect the current valuation of financial services companies has already been experienced, and we will get to long-term value stabilizing so we won't have incremental write-downs of goodwill going forward."
The following is a discussion of one-time items affecting five large bank holding companies, starting with the three largest U.S. bank holding companies that all saw their first-quarter GAAP earnings per share skewed by DVA or CVA, as well as various other items: