Did Bank Of America And Citigroup Commit Accounting Fraud?

On CNBC:

• Bank of America and Citigroup incorrectly accounted for billions of dollars in debt over the past three years, according to a report from the Wall Street Journal.
  
  The report highlights a form of corporate borrowing increasingly under scrutiny since the financial crisis began. The loans, known as "repos," or short-term repurchase agreements, allow banks to increase the amount of risk they can take in securities trading.
  
  Both BofA [BAC 15.74 -0.44 (-2.72%) ] and Citigroup [C 3.96 -0.06 (-1.49%) ] disclosed in filings with the Securities and Exchange Commission that they have over the last three years accidentally classified some repos as sales when they should have been classified as borrowings, the newspaper reported. The amounts involved were small for the banks, though they totaled billions.... http://www.cnbc.com/id/37366067

The WSJ article..

WSJ: Bank Of America, Citigroup Incorrectly Hid Billions In Repo Debt

• Bank of America Corp. (BAC) and Citigroup Inc. (C) incorrectly hid from investors billions of dollars of their debt, similar to what Lehman Brothers Holdings Inc. did to obscure its level of risk, company documents show.
  
  In recent filings with regulators, the two big banks disclosed that over the past three years, they at times erroneously classified some short-term repurchase agreements, or "repos," as sales when they should have been classified as borrowings. Though the classifications involved billions of dollars, they represented relatively small amounts for the banks.
  
  (This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.)
  
  A bankruptcy-court examiner said Lehman had been doing the same thing to make its balance sheet look better before it filed for bankruptcy in September 2008, using a strategy dubbed "Repo 105" that helped the Wall Street firm move $50 billion in assets off its balance sheet.
  
  Bank of America and Citigroup say their misclassifications were due to errors--not an attempt to make themselves look less risky, which examiner Anton Valukas said was Lehman's motivation. The disclosures, made after federal securities regulators began asking financial firms about their repo accounting, were included in quarterly filings earlier this month but not highlighted.
  
  The disclosures come amid a series of revelations about how banks obscure their risk-taking before reporting their finances to the public, a practice known in the financial world as "window dressing."
  
  Bank of America and Citigroup were among the banks cited in a page-one Wall Street Journal article on Wednesday detailing how financial firms temporarily shed repo debt at the ends of quarters, when they report their finances to investors. Since the financial crisis began, both banks often have reduced their quarter-end repo debt from their average borrowings for the same quarter. That activity didn't involve misclassifying repo loans as sales.
  
  Repos are short-term loans that allow banks to take bigger risks on securities trades; classifying the transactions as sales instead of borrowings allows a firm to take assets off its balance sheet and thus reduces its reported leverage, or assets as a multiple of equity capital.
  
  Federal securities rules bar financial firms from intentionally masking debt to deceive investors. There is no indication that Bank of America or Citigroup misclassified their repos intentionally or that the Securities and Exchange Commission will take any action against them. An SEC spokesman declined to comment.
  
  The amounts Bank of America and Citigroup cite are relatively small. The misclassifications had tiny impacts on the banks' reported leverage, and none at all on their earnings or shareholder equity. The banks didn't restate any financial statements.
  
  Bank of America said the misclassified transactions in certain quarters over the past three years-ranging from $573 million to as much as $10.7 billion-"represented substantially less than 1% of our total assets" and had no material impact on its balance sheet, earnings or borrowing ratios.
  
  Citigroup said the misclassified transactions-of $5.7 billion as of the end of 2009, and as much as $9.2 billion over the past three years-involved "a very limited number of our business units" that "used this type of transaction in very small amounts." It also said its errors were immaterial to its financial statements. "At no point in time was the impact of these sales transactions large enough to have a noticeable impact on our published leverage ratios."
  
  By comparison, both banks have more than $2 trillion in assets.
  
  The SEC had asked big banks in March for more information about their repo accounting in the wake of the Lehman bankruptcy report. That inquiry hasn't found any widespread inappropriate practices, SEC Chief Accountant James Kroeker told a congressional subcommittee last week.
  
  But Kroeker said the SEC has asked several companies to provide more disclosure about their repo accounting in their securities filings. Bank of America and Citigroup indicated they had found their errors on their own initiative.
  
  More broadly, the SEC is now considering stricter disclosure and a clearer rationale from firms about quarter-end borrowing activities. The agency may extend these rules to all companies, not just banks. The potential new rules, disclosed by SEC Chairman Mary Schapiro at a congressional hearing last month, came two weeks after the Journal's initial article about banks' debt-masking activity.
  
  Separately, Bank of New York Mellon Corp. (BK) said in a securities filing that it had found some small errors in its repo accounting over the past three years. The bank said it didn't use Repo 105 transactions.
  
  The errors have been corrected, and none of them were material to the bank's financial statements, the bank said in the filing. A Bank of New York Mellon spokesman declined further comment.

So CNBC version is incorrectly account... WSJ version was incorrectly hid...

LOL!

Sigh!

So what was at stake?

The amount of debts.

Surely... the amount of debts in a balance sheet is so very crucial for the investor in the street, yes? How can the banks incorrectly account/hid these figures?

Yes it might had no financial impact to the banks earnings but the balance sheet did look better than what it really was had these debts been accounted correctly!

Would it be piss wrong to accuse that this is pure financial shenanigans?

Or would it be wrong to call it fraud?

And these banks are trying to dismiss it as small amount.

My... it's only BILLION of dollars worth of incorrectness!

My.... good or what!

Why The Banking Sector Is Still Shakey

I was just reading Sprott Asset Management report on the banking sector.

You can read the full report here: Don't Bank On The Banks

The table highlighted on page 3.

Page 4.

• In Chart A we provide leverage levels for a few select banks that deserve special mention in our leverage discussion. These three banks were all bailed out by their respective governments. We’d like to draw your attention to their leverage ratios, prior and post-bailout, to emphasize the importance of leverage over time.
  
  We’ll start with Citigroup, which was de facto nationalized by the US government when it received $25 billion from the TARP program, a massive US government guarantee on $306 billion in residential and commercial loans and a $27 billion cash injection for preferred shares. You can see the impact these bailouts had on Citigroup’s leverage ratio over the years, moving it from 37:1 in 2007, increasing to 64:1 at the end of 2008 and back down to 17:1 after the government cash injections. The 64 to 1 ratio required a government bailout. One wonders if 17 to 1 is an appropriate level for Citigroup, given their exposure to high risk assets.
  
  The Royal Bank of Scotland makes Citigroup’s leverage look tame in comparison. Using our definition, we calculated an eye popping leverage ratio of 574:1 in 2007, implying that a mere 0.17% decrease in assets would have wiped out their tangible common equity. Is it any wonder then that the hiccup in the housing market blew them apart? RBS now holds the distinction as the world record holder for the largest bank bailout. The UK Government has earned a 70.3% shareholding in the bank after providing them with their second bailout in November 2009.10 In total, a whopping £53.5 billion has been injected into RBS by the British Government, which is now exposed to losses on £250 billion of RBS balance sheet assets. In return for the government support, RBS has agreed not to pay cash bonuses to any staff earning above £39,000 in 2009, and to defer executive bonuses until 2012. Although they’ve come down since 2007, RBS still maintains a very high leverage ratio. Hopefully two bailouts by the UK government will be enough.
  
  Our final example is Dexia. It was bailed out by three separate governments and its shareholders, receiving €6.4 billion in bailout money from France, Luxembourg and Belgium in September 2008. Dexia is the largest lender to local governments in France and Belgium. According to their latest financial filings, Dexia is operating at a leverage ratio of 116:1, which strikes us as very extreme in this environment. Again – at those leverage levels, the smallest asset decrease would wipe out all tangible common equity. That’s extremely risky for an institution as large as Dexia, and highlights the problems that still plague the global financial system.
  
  The examples above show that our leverage measurement is a good variable to review before making a common equity investment in a bank. The higher the leverage ratio, the greater the risk of losing your common equity. While we haven’t delved into the asset “quality” of any of these banks, we have been watching US bank failures for a market-based indication of the quality of their assets in a liquidation scenario. High profile examples include Colonial Bank, the largest US bank failure thus far in 2009, which had total assets of $25 billion and cost the FDIC $2.8 billion in losses - representing an 11% write-down on their assets. Also notable was Chicago’s Corus Bank, which cost the FDIC $1.7 billion on total assets of $7 billion - representing a 24% write-down. For Colonial, 10:1 leverage was too high, and in the case of Corus, a mere 4:1. Citing the most recent bank failures in the US, it would appear that most financial assets are still being written down by at least 10%. Although each bank is different and has its own specific asset allocation, this raises major cautionary flags for us, given that the banks listed above still utilize leverage ratios well above 20:1. For such a seemingly complicated industry, it surprises us that such a simple red flag continues to stump the regulators who oversee it.
  
  Given the discussion above, is it any wonder why we continue to see banks receive more government cash injections and asset guarantees? And is it any surprise that banks aren’t lending the cash they were given by the central banks? Of course it isn’t. The leverage in the banking system is still too high. Judging by recent comments by finance ministers and central bankers, it is clear to us that they have no plans to address leverage in their regulatory proposals, and until they do, we would advise that you invest in bank stocks with extreme caution. Don’t say you weren’t warned.

Makes you wonder about Citigroup. Their leverage is still 17:1???? Not a worry? Colonial Bank which went down, according to this report, had a leverage of only 10:1. And Corus Bank of Chicago had a leverage of only 4:1!

Hmmm.....

Then I was thinking of Dubai World.

Well two of the shakiest bank mentioned in Sprott Management report, was included in the list of Banks With The Biggest Exposure to The UAE!!!

On the UK Telegraph: Banks braced for record debt defaults in the New Year

• January is traditionally the worst time of year for debt defaults, according to the credit checking company Experian. The recent surge in unemployment and personal insolvencies will make the first quarter "the busiest period ever", the company said.
  
  "Christmas is a catalyst for delinquency and bad debt, with credit card and overdraft debt traditionally peaking in the New Year," Simon Waller, Experian's head of collections for UK and Ireland, said.
  
  "Economic indicators and feedback from our collections clients suggests that the first quarter of 2010 could be the busiest period ever seen."
  
  Experian is anticipating the worst due to the 771,000 job losses in the first nine months of the year, a 94pc increase on 2008, and the record quarterly personal insolvency rate of 41,390 for the three months to September.
  
  Banks have also been cranking up their marketing to households in the run up to Christmas. The Call Prevention Registry has seen a 50pc increase in "nuisance calls" from debt management organisations in the past month trying to persuade customers to take out new loans.
  
  Mr Waller said: "With unemployment at its highest since 1996 and record numbers of redundancies and insolvencies, it is vital for collections departments to do everything to ensure that their people can cope with the influx of new cases."

And over at Jesse's Café: The Dangerous US Financial Sector Still Smoldering

Citic's Problems Blows Right Open!

Posted last year David Webb's Time-Bomb Warning On Citic Pacific Should Not Be Dismiss and also early this year Citic Pacific's Chairman And MD Face Securities Probe.

Flashback of David Webb's article last October.

• It turns out that little old ladies buying minibonds aren't the only ones to have been taken in by structured financial products. Hang Seng Index member (for now) CITIC Pacific Ltd (CP, 0267.HK) stunned the market this evening with the extremely late announcement that they are sitting on realised and unrealised losses of HK$15.5bn (US$1.99bn), due to foreign exchange exposures the Company was aware of six weeks ago (although the losses have grown) but had failed to tell investors until now.

On today's Edge Financial Daily Auditor finds irregularities at Citic Securities, shares fall. ( Citic Securities which is China's BIGGESTbrokerage company and Citic Pacific is the company's listed unit in Hong Kong)

• SHANGHAI: Citic Securities Co said today that state auditors had discovered some irregularities at the firm, sending shares of China's biggest-listed brokerage tumbling.
  
  China's National Audit Office spotted problems in Citic Securities' financial treatment of incentives related to its brokerage business, the Beijing-based company said in a statement to the Shanghai Stock Exchange.
  
  The irregularities occurred in 2007, before related rules were published, and would not have any impact on the company's performance or published results, it said.
  
  In a routine check last year, state auditors also uncovered irregularities at Industrial & Commercial Bank of China (ICBC) and China Construction Bank (CCB), according to separate exchange filings. Corrections had been made and the findings had no impact on business, both lenders said.
  
  Citic Securities shares fell nearly 5% at one point before closing 2.88% lower at 28.32 yuan (RM14.69). That compares with a 0.12% dip in the benchmark Shanghai Composite Index.
  "The impact of such problems should be short-term and negligible. The market is over-reacting," said Tian Liang, analyst at Ping An Securities Co. "We're optimistic on the future performance of the company, which would benefit from big stock market turnover and upcoming initial public offerings (IPOs)."
  
  ICBC shares rose 1.31% and CCB shares ended up 3.31% in Shanghai, lifted by a broader rise in banking shares.
  
  Citic Securities shares have gained more than 50% this year, as the stock market rallied and trading volume surged. Citic Securities also stands to benefit from China's resumption of initial public offerings this month.
  
  Next year, big companies such as Agricultural Bank of China and China Mobile may sell shares publicly in China, potentially giving Citic Securities a boost in underwriting revenue, analyst Tian said.
  
  Citic Securities' problems were found in a state audit conducted between March and June last year at its parent Citic Group, China's biggest financial conglomerate.
  
  The inspection came after the group's Hong Kong-listed unit, Citic Pacific, posted US$2 billion (RM7.1 billion) in losses from unauthorised bets in volatile foreign exchange markets.
  
  In addition to Citic Securities, irregularities were found at some other units of Citic Group, the statement said.
  
  Citic Securities' problems occurred in 2007, before the government published rules in April 2008 to regulate the country's brokerage business, the company said in the statement.
  
  "We paid high attention to the government audit, and actively cooperated," Citic Securities said. "We corrected our mistakes as we were being audited." — Reuters

Citigroup Files Its Defence Against Oei's Lawsuit

Posted last month Citigroup Sued By Oei Hong Leong

On the Edge Financial Daily Citi says not responsible for Singapore client's loss

• SINGAPORE: Citigroup on Friday rejected a writ by a Singapore private banking client who claimed he lost over S$1 billion because the bank provided inaccurate information and failed to execute some of his trades.
  
  Citi said in a court filing seen by Reuters that businessman Oei Hong Leong "demonstrated a considerable appetite for risk and an understanding of the risk and exposure associated with the various derivative investment structures entered into."
  
  His open positions with Citi had stood as high as US$6.89 billion in February 2008, the bank said.
  
  Many private banking clients lost money in the aftermath of the Lehman Brothers collapse last September that led to turmoil in financial markets.
  
  Citi denied providing Oei with inaccurate and misleading margin numbers, and alleged Oei's claims of a "meltdown" in its tracking and control systems were "contrived afterthoughts".
  
  "We intend to vigorously defend the action. We have today filed our defence," Citi's private bank said in a statement.
  
  As for Citi's alleged failure to execute US$600 million worth of buy orders for US Treasury bonds placed by Oei, the bank claimed that was because Oei had consistently set his limit prices below the indicative market prices.
  
  Oei's lawyer, Quek Mong Hua, said Citi's denial "was not unexpected", and his team was studying Citi's defence.
  
  Oei, one of Singapore's richest men, last month sued Citi, with which he has a 30-year relationship, for negligence and misrepresentation.
  
  He alleged the bank repeatedly gave him an inaccurate picture of his trading exposure, which led him to take on more positions than he would have taken otherwise. — Reuters

Citi CEO: The Illusion Of Profits Has Ended

I feel that there is so much truth in what's said in the following article, Economy won't go back to old ways: Citi CEO.

That extreme high fanatic 2005-2006 years are probably gone and yes I certainly reckon that the term 'illusion' of profits is rather spot on!

Hence, as it is, I reckon that one could basing their investment valuations on historical data that might not be achieved for a long, long time.

Hey, I could be wrong as usual. :D

And the stability issue mentioned reflected what Krugman was saying in the posting. Paul Krugman Talks About His Fear Of Lost Decade

• The risk of a full, all-out Great Depression - utter collapse of everything - has receded a lot in the past few months.

Economy won't go back to old ways: Citi CEO

• DETROIT, US - The global economy is seeing signs of stability but is unlikely to return to a system that created an "illusion" of profits, Citigroup chief executive Vikram Pandit said Monday.
  
  Pandit, speaking to a national economic summit in Detroit, Michigan, said the crisis has shown the global economy needs "a new business model."
  
  "The bold steps taken by policymakers around the world are starting to work," he said.
  
  "We're seeing early signs of stability. Those signs are encouraging. But even as we achieve stability there are still economic challenges ahead of us."
  
  Pandit, who heads what was once the world's biggest banks before the crisis forced it to seek one of the largest government bailouts, said he sees major differences in the post-crisis economy.
  
  "The structure of the world economy is likely to be very different form the one that we're all familiar with," he said.
  
  "We don't save enough as a country. If you don't save you do not invest ... we have too much leverage as consumers, and as a financial system, this leverage-funded consumption created an illusion of financial returns."
  
  He said US consumer spending and credit creation were the main drivers of global growth but this is unlikely to continue.
  
  "The world needs new drivers of growth and for that matter needs a new business model," he said.
  
  "Businesses are going to have to search for new growth drivers away from US consumption and credit creation."
  
  The US faces a "conundrum" because it needs to pay down its massive government debt but that paying down debt quickly may hurt growth needed to achieve prosperity.
  
  "Policies that encourage growth are likely to be expensive in the short term," he said. "Policies such as those that increase taxes to pay down debt are likely to reduce growth and that is the conundrum that we're all going to have to face.

Citigroup Sued By Oei Hong Leong

On Singapore's StraitsTimes: Oei sues Citigroup

• LOCAL businessman Oei Hong Leong - dubbed the 'man with the Midas touch' - lost a whopping $1 billion on foreign exchange and US Treasury bond transactions last year.
  
  While he has fully paid off these losses, he is now suing Citigroup's private banking arm in the High Court for negligence and misrepresentation, legal documents seen by The Straits Times reveal.
  
  Mr Oei claims that the bank - with which he has a 30-year relationship - repeatedly gave him an inaccurate picture of his trading exposure, causing him to take on more positions than he would have otherwise done so.
  
  When he knew the full extent of his exposure, he felt he had no choice but to close his positions - at an extremely volatile time last October - thus suffering massive losses.
  
  It is not clear how much of a beating Mr Oei's net worth has taken, but he was ranked Singapore's 29th richest man by Forbes last year with a net worth of only US$210 million (S$308 million). Forbes bases its listing on stakes in publicly traded companies and in private company filings.
  
  Ironically, Mr Oei has become the latest high-profile victim of the financial crisis because he was trying to reduce his exposure.
  
  In 2007, he believed that the global economy would experience a downturn and decided to trim his trading positions, his statement of claim says.
  
  Meanwhile, he told his private bankers that he wanted to maintain a margin surplus of about US$100 million.
  
  This is cash placed with a bank and clients can trade up to several times that amount. If the trades run up losses, this margin has to be topped up.
  
  Following a change of relationship manager last year, Mr Oei dealt mainly with two assistants in the private banking department, whom he would call to check on the balance on a daily basis.

What an incredible lawsuit!

Citigroup's Pandit Paid US$11 Million As Citigroup Took Bailout Money

Yet another news that would displease many!

Are you reading Singapore?

Pandit paid $11m as Citigroup took $45bn bailout

• Vikram Pandit was paid almost $11 million (£7.8 million) to lead Citigroup in a year that the troubled US bank required $45 billion in handouts from the taxpayer.
  
  A regulatory filing by the company showed that Mr Pandit, who was hired as chief executive in December 2007, was paid a basic salary of $958,333, stock awards valued at $8.2 million and options worth $1.6 million.
  
  Most of the stock award was a $7.7 million signing-on bonus for taking the job at a time when the bank was struggling.
  
  Mr Pandit's other compensation included $2,393 for "ground transportation" and $13,800 in pension contributions. But he paid the company for his personal use of Citigroup's aircraft — a sensitive issue following recent criticism by President Barack Obama over the bank's plan to buy a new corporate jet.
  
  The revelations come as executive compensation is under unprecedented scrutiny from lawmakers and voters infuriated at the multibillion dollar bailouts handed to banks that continue to pay huge bonuses to workers.
  
  AIG is under fire for paying $165 million in bonuses yesterday to executives at its stricken financial products business, despite needing $170 billion from the Government to survive.
  
  Mr Pandit, who was not paid a performance bonus last year, agreed to work for a base salary of $1 and no bonus this year.
  
  Citigroup, which promised following its most recent government bailout to clean out its boardroom, today announced four new board nominees.
  
  Jerry Grundhofer, former chief executive of US Bancorp, Michael O'Neill, former chief executive of Bank of Hawaii, William Thompson, former chief executive of Pimco, and Anthony Santomero, former president of the Federal Reserve Bank of Philadelphia, have been nonimated as directors.
  
  Shareholders will vote on the appointments at an annual meeting on April 21.
  
  Richard Parsons, who replaced Sir Win Bischoff as Citigroup's chairman in January, said at the time that he would inject new blood into the board. He reiterated his plans last month when the Treasury took at 36 per cent stake in the bank to shore up its capital base.
  
  The Treasury had demanded a more independent board in return for its support of Citigroup.
  
  Sir Win and Robert Rubin, the long-time director and adviser as well as director Roberto Hernandz Ramirez said that they would not stand for re-election at the April meeting. Board members Franklin Thomas and Kenneth Derr said that they would retire.

Singapore GIC Investment Mistake In Citigroup And UBS

I was searching the net for comments written on Singapore's GIC losses in Citigroup and UBS.

I came upon the following article posted, “Substantial Long-term Returns” From Bank Investments? Fat Hope, GIC

Give it a read, it's rather interesting. :D

Anyway I am thinking out loud here. My thinking could be obviously flawed but I cannot stop wondering about Singapore GIC. What are they thinking? Obviously Citigroup and UBS were terrible mistakes and they paid some terribly high prices for their mistakes. So why couldn't they just admit they made a terrible mistake and realise their losses? Why can't they cut loss? Why insist on taking this long term approach? Don't they realise that holding them long term solves nothing? Long term investors? They look like long term mistake holders!

Just my flawed opinion. :p2

Citi Broke But Still Insist On A $50 Million Jet

Absolutely ludicrous!

• NEW YORK/WASHINGTON: Citigroup Inc, which has received US$45 billion (US$1 = RM3.62) of capital from the US government, is going through with plans to buy a US$50 million jet, but a US senator called the deal absurd and wants the Obama administration to block it.
  
  The bank signed a contract several years ago to buy a Dassault Falcon 7X and plans to accept delivery later this year, according to a person familiar with the matter.
  
  Citigroup said in a statement that refusing delivery now would result in millions of dollars of penalties. The bank also said it is selling existing aircraft, the proceeds of which will more than pay for the new plane.
  
  The New York Post, which was first to report the bank was still buying the new plane, said earlier on Monday that Citigroup was selling two jets estimated to be worth US$27 million each.
  
  In Washington, the White House frowned on the purchase with a spokesman saying President Barack Obama does not believe "that's the best use of money" by companies that are receiving taxpayer assistance.
  
  Citigroup said it is not using funds it received from the government's Troubled Asset Relief Programme to pay for the jet and it will continue to comply with all TARP requirements.
  
  The new jet will be more fuel-efficient and will lower Citigroup's operating expenses, the bank said.
  
  Seator Carl Levin, a Michigan Democrat, wants the Treasury Department to block the sale.
  "To permit Citigroup to purchase a plush plane - foreign-built no less - while domestic auto companies are being required to sell off their jets is a ridiculous double standard," Levin said. - Reuters

Source: here

Shadow of Doubt Over Citigroup's earnings?

The following passage from the following article on Bloomberg News, Citigroup's $1.1 Trillion of Mysterious Assets Shadows Earnings caught my attention.

• July 14 (Bloomberg) -- At an investor presentation in May, Citigroup Inc. Chief Executive Officer Vikram Pandit said shrinking the bank's $2.2 trillion balance sheet, the biggest in the U.S., was a cornerstone of his turnaround plan.
  
  Nowhere mentioned in the accompanying 66-page handout were the additional $1.1 trillion of assets that New York-based Citigroup keeps off its books: trusts to sell mortgage-backed securities, financing vehicles to issue short-term debt and collateralized debt obligations, or CDOs, to repackage bonds.
  
  Now, as Citigroup prepares to announce second-quarter results July 18, those off-balance-sheet assets, used by U.S. banks to expand lending without tying up capital, are casting a shadow over earnings. Since last September, at least $100 billion of assets have flooded back onto Citigroup's balance sheet, accompanied by more than $7 billion of losses.
  
  ``If you start adding up all the potential exposures, it's a huge number,'' said Sam Golden, a former ombudsman for the U.S. Office of the Comptroller of the Currency who now heads the financial-industry practice for restructuring adviser Alvarez & Marsal in Houston. ``The banks will say that it was disclosed. Investors are saying, `Yeah, but it was cryptic. We really didn't know what you were telling us.'''
  
  U.S. banks already are reeling from more than $165 billion of writedowns and credit losses, so shareholders are wary of unknown obligations that might force them to take responsibility for additional troubled assets. The risks have become so obvious that accounting officials are proposing new rules -- some of which Citigroup opposes -- that would force many assets back onto balance sheets.
  
  On the Hook
  
  Seven of the biggest U.S. banks, including Citigroup, are on the hook for at least $300 billion of credit and liquidity guarantees for off-balance-sheet loans and bonds, according to a June 30 report from consulting firm RiskMetrics Group Inc. in Rockville, Maryland. Such guarantees were remote when pledged as an inducement to bond buyers. Now, the first year-over-year decline in housing prices since the Great Depression and rising home-loan, commercial-mortgage and credit-card delinquencies have begun to trigger them.
  
  ``You will rapidly realize what a farce these off-balance- sheet things are,'' said Ladenburg Thalmann & Co. analyst Richard X. Bove. ``You could pick up a lot of loan losses with the stuff you're putting back on.''
  
  It's impossible to predict what the losses might be from off-the-books assets or liabilities because disclosures are thin relative to what is required for balance-sheet assets, said Neri Bukspan, chief accountant for Standard & Poor's in New York.
  
  ``A lot of information tends to disappear or becomes second or third class,'' Bukspan said.
  Second-Quarter Loss
  
  Citigroup has had to bail out at least nine investment funds in the past year, including seven structured investment vehicles, or SIVs, whose funding withered. The bank had to assume $45 billion of securities from those SIVs, which are now included in the $400 billion of on-balance-sheet assets Pandit says he's trying to unload in the next three years.
  
  The bank probably will report a second-quarter net loss of $3.7 billion later this week, according to the average estimate of seven analysts surveyed by Bloomberg. A loss would be the company's third straight and add to $15 billion of losses recorded during the previous two quarters.
  
  Citigroup plunged 69 percent in the past year in New York Stock Exchange composite trading. It closed at $16.19 on July 11, down 52 percent from April 6, 1998, when Citicorp agreed to form the modern company by merging with Sanford ``Sandy'' Weill's Travelers Group Inc.
  
  JPMorgan, Merrill
  
  JPMorgan Chase & Co., which has more than $400 billion of off-balance-sheet assets, also reports second-quarter results this week. The New York-based bank, the largest U.S. bank by market value, may say second-quarter profit fell 55 percent to $1.9 billion, analysts estimate.
  
  Merrill Lynch & Co., the third-biggest U.S. securities firm by market value, also reports results this week. New York-based Merrill had to buy about $4.9 billion of mortgage-linked assets last year from an off-balance-sheet financing vehicle, resulting in a $170 million loss. It may post a second-quarter loss of $1.56 billion after reporting about $14 billion of net losses in the previous three quarters, according to a Bloomberg survey of 11 analysts.
  
  ``The riskiest assets we had, our CDOs, weren't even on our balance sheet,'' Merrill Chief Executive Officer John Thain said on a June 11 conference call with investors. Merrill would have to provide $15 billion in financing for CDOs and related obligations under a ``severe stress scenario,'' according to a Merrill regulatory filing published in May.
  
  VIEs, QSPEs
  
  The Financial Accounting Standards Board, the five-member panel in Norwalk, Connecticut, that sets U.S. accounting rules, voted earlier this year to eliminate ``qualifying special- purpose entities,'' or QSPEs, a category of off-balance sheet financing exempted from tighter standards enacted following the collapse of U.S. energy trader Enron Corp. FASB also plans to clamp down on ``variable interest entities,'' or VIEs, that banks used when their vehicles couldn't qualify as QSPEs. And it voted June 11 to force banks to consolidate off-balance-sheet assets whenever an ``obligation to absorb losses can potentially be significant.''
  
  Banks are required to disclose their off-balance-sheet assets in annual reports. According to Citigroup's most recent financial statement, filed in May, the bank's $1.1 trillion of off-the-books assets as of March 31 included $760 billion of QSPEs and $363 billion of unconsolidated VIEs.