Let us hark back to a post of a few days ago about banks overstating their profits by virtue of fair value accounting, because it seems it is still happening. In Barclays quarterly results they mention some real write-offs:
The gross losses, which included £754m (2008: £598m) in impairment charges, comprised: £1,225m (2008: £1,830m) against US RMBS exposures; £884m (2008: £77m) against commercial mortgage exposures; and £504m (2008: £72m) against other credit market exposures.
which are offset by…
related income and hedges of £182m (2008: £270m) and gains of £279m (2008: £703m) from the general widening of credit spreads on issued notes measured at fair value through the profit and loss account.
Did you spot that? "gains of £279m (2008: £703m) from the general widening of credit spreads on issued notes measured at fair value through the profit and loss account" Yup, the writedowns are real enough, but the second part of the mitigation basically says Barclays is a lousier credit than it was 3 months ago, so the market spread on its issued debt has widened, so the present value of its liabilities measured at a market discount rate has reduced, so Barclays can book a £279m profit on its borrowings. Except that of course Barclays still has to pay the same amount as before and the £279m will show up as an increased expense between now and the date that the loans are paid off.
Indeed, if Barclays credit does improve that £279m gain and the £703m gain from this time last year (the figure for the whole year was over £1.6bn) will be booked as a loss as the credit spread reduces.
UPDATE: It seems the same is happening at RBS again. It should seem strange that while the world going to hell in a hand basket that RBS should be reporting an increase in profitability in its markets division. It seems the same is going on their with one-off gains in the fair value of own debt of £647m in the markets division and £384m in the treasury. Which means that in addition to handing shareholders a £857m loss for the quarter, they can figure that that number includes a billion or so of fictitious profits that only arose because RBS's credit rating has disappeared down the pan.