JPMorgan’s WaMu Windfall Turns Bad Loans Into Income (Enron Accounting)

[Joanne98]

JPMorgan Chase & Co. stands to reap a $29 billion windfall thanks to an accounting rule that lets the second-biggest U.S. bank transform bad loans it purchased from Washington Mutual Inc. into income.

Wells Fargo & Co., Bank of America Corp. and PNC Financial Services Group Inc. are also poised to benefit from taking over home lenders Wachovia Corp., Countrywide Financial Corp. and National City Corp., regulatory filings show. The deals provide a combined $56 billion in so-called accretable yield, the difference between the value of the loans on the banks’ balance sheets and the cash flow they’re expected to produce.

Faced with the highest U.S. unemployment in 25 years and a surging foreclosure rate, the lenders are seizing on a four- year-old rule aimed at standardizing how they book acquired loans that have deteriorated in credit quality. By applying the measure to mortgages and commercial loans that lost value during the worst financial crisis since the Great Depression, the banks will wring revenue from the wreckage, said Robert Willens, a former Lehman Brothers Holdings Inc. executive who runs a tax and accounting consulting firm in New York.

“It will benefit these guys dramatically,” Willens said. “There’s a great chance they’ll be able to record very substantial gains going forward.”

JPMorgan rose $2.13, or 6.2 percent, to $36.54 at 4 p.m. in New York Stock Exchange composite trading. Wells Fargo gained 1.3 percent to $25.65 and PNC Financial climbed 5 percent to $43.25. Bank of America fell 9 cents to $10.98.

Purchase Accounting

When JPMorgan bought WaMu out of receivership last September for $1.9 billion, the New York-based bank used purchase accounting, which allows it to record impaired loans at fair value, marking down $118.2 billion of assets by 25 percent. Now, as borrowers pay their debts, the bank says it may gain $29.1 billion over the life of the loans in income before taxes and expenses.

The purchase-accounting rule, known as Statement of Position 03-3, provides banks with an incentive to mark down loans they acquire as aggressively as possible, said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine.

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http://www.bloomberg.com/apps/news?pid=20601109&sid=aJ0o66r8Ht9k&refer=home

[Gman]

1. If you read this you've been forewarned

Don't by JP Morgan stock.

[Horse with no Name]

2. Just like Rumplestiltskin

Spinning straw into gold. Reality is in the hands of the moneychangers--THEY decide what is valuable--and what is not.
If they had a pile of shit and you had a pile of gold--I guarantee that their shit would be priced 10x higher than your gold.

[madrchsod]

3. no regualtion and no oversight-change we can believe in

[notesdev]

5. This IS their idea of regulation

Let's face it... the stronger the regulation we have, the more money that will flow into the system to buy out and corrupt the regulators.

The 'regulation' we need is throwing people who committed fraud in jail and clawing back their ill-gotten gains; for companies, bankruptcy/receivership when they are actually insolvent. That is not only the clearest, most sensible path back to some sort of realistic, growth-capable economy, it also happens to be the law.

So let's start seeing some people follow the law, eh?

[corpseratemedia]

4. change that is bullshit