The Farce Behind Quarterly Earningshttp://www.huffingtonpost.com/2009/04/13/the-farce-behind-quarterl_n_186424.html">The Huffington Post
Wall Street has long viewed quarterly earnings skeptically, but this season may be one of the least realistic in recent memory. That's because banks are doing everything they can to wring out a profit and gain that most valued of commodities--investor confidence.
Facilitating the banking industry's efforts to post a profit is the relaxation of mark-to-market accounting and the fact banks can borrow funds at historically low rates while selling them at historically high rates.
"Banks are doing everything and anything in their power right now to get their earnings as high as possible," Paul Larson, an equities strategist at research firm Morningstar, said.
"I have been in the business 25 years and earnings have always been an ongoing mystery, but it has gotten worse and worse," said James Paulsen, the chief investment strategist at Wells Capital Management.
On Monday evening, Goldman Sachs reported quarterly earnings of $3.39 per share, exceeding analyst forecasts by more than 100%. Last week, Wells Fargo reported projected earnings of $3 billion, more than double what the Street had predicted.
In Wells Fargo's case, it reported that its losses on loans and other assets had improved despite the collapse of the real estate market and growing foreclosures.
Either Wells Fargo found an amazingly disproportionate number of folks who are making mortgage payments, or some accounting gimmickry is at play.
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