Bank of America's 'profit' included $5.6 billion in accounting gimmicks

Wonder why Bank of America (BAC) shares are tumbling? I don't really know. But until a few minutes ago I had not realized that the $4.2 billion in net income that B of A reported included $5.6 billion in accounting gimmicks. I feel like a broken record but it really is a waste of time for companies to write their own report cards since they are always going to report things in a way that makes things better than they are.

What were these magical $5.6 billion worth of gimmicks?

  • A $1.9 billion pretax gain on the sale of shares in China Construction Bank shares, in which B of A continues to own 17 percent
  • A $2.2 billion pop in the stated value of structured notes at Merrill
  • Another $1.5 billion boost to its trading books.

It did not take analysts very long to see through this mirage of accounting games. The stock closed down nearly 25 percent.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and is the author of You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.

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