U.S. Banks Hid Risk by Lowering Debt Before Reporting, WSJ Says

U.S. banks masked their true risk levels by temporarily lowering debt before reporting it, the Wall Street Journal said, citing data provided by the Federal Reserve Bank of New York.

Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and 13 other banks all understated the amount of debt used to pay for securities trades by cutting them by an average of 42 percent at the end of five quarterly periods; the debt levels were then boosted midway through each quarter, the newspaper said.

After the collapse of Lehman Brothers Holdings Inc., spurred in part by excessive borrowing, in 2008, banks have become more concerned that reporting high debt levels could jeopardize share prices and credit ratings, the Journal said. While not illegal, the practice can distort investors’ impression of risk being taken by banks, the report said.

Read Full Article from Bloomberg

- Posted: 2010-04-09 08:56:40

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