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The Bank of England agrees with us!

November 30, 2012

We have been saying ad infinitum in this blog that  big banks are misrepresenting their capital ratios by under-reserving for loan losses.  The Bank of England’s latest Financial Stability Report agrees with us.  Of course, the report is only for UK-based banks.  But this is true for all big global banks- hence they are trading far below book values.

But there is something else in the report which we have never highlighted but prudent investors must take on board- banks are overstating their health by using “aggressive” risk weights to determine how much capital different categories of loan require.  If this is true, the regulators of the world must haul up auditors who allow this to happen.  Anyway, clearly big bank investment, without hard due diligence (and not due-diligence lite) is a mug’s game.

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From → Credit Analysis

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