SGM Metals: "Profitable Banks" Actually Are Insolvent & Need Bailouts, Again!

June 4, 2012 - PRLog -- zerohedge.com reports: [ It is rather amazing what one finds when a company which previously had allegedly posted a profit of €41 million, somehow becomes insolvent, needs a nationalization to avoid a full out liquidation, and gets bailed out by the state. One of the first things one finds is that the profit pitched to that particular class of gullible idiots, known as shareholders, was an outright lie. And yes, on that one very rare occasion when an auditor refuses to sign off on a bank's financials, in this case Deloitte, run far, and run fast. Instead what one finds is a massive loss.

From Reuters: "BFA, the parent group of nationalized Spanish bank Bankia said on Monday it had restated its 2011 results to reflect a 3.3 billion euro loss, rather than a 41 million euro profit, following a bailout from the state. In a statement to the stock exchange regulator, BFA said the restated loss reflected a review of its loan portfolios and capital needs after a new audit and as part of the clean-up plan implemented by the government." Well, duh, something "new" better be reflected, or else the general public may just get the impression that banks are merely pulling numbers out of their glutes, that the entire balance sheet, income and cash flow statements are just a jumble of utter BS, and that keeping one's deposits in a system predicated on lies and fraud may not be the smartest thing. But no: that would imply one is inciting a bank run, and that is frowned upon by the very same government which does everything in its power to facilitate just the data manipulation that magically results in a profitable bank being on the verge of liquidation.

But that's not all. According to Spain's Expansion, the total loss could be far worse, more than double the just reported, to a total of €7 billion. Google translated:

   Following a meeting of more than four hours, the board of directors of the entity on Monday approved the restated financial statements. Bankia matrix provided only consolidated data for the year 2011, yielding a loss of 3.318 million euros. However, individual losses would amount to 7,000 million BFA, according to financial sources.

   The consolidated balance sheet losses gave the fruit of Bankia own numbers, which on Friday announced that it obtained a negative result of 2.979 million in 2011. In previous accounts, unaudited, BFA had lost 439 million in individual accounts, while recognized in consolidated profit of 41 million.

   The red numbers are mainly due to the development of fair value of the share itself has BFA Bankia (52% in December 2011).

Indicatively, the move from a profit to a €7 billion loss, in a US context, is roughly the same as if US bank holding company X were to go from being profitable to posting a nearly $100 billion loss. Overnight. But only after the FDIC was invited to backstop the firm's suddenly underwater hundreds of billions in deposits. Oops.]

SO it seems the rock solid global banking system that we were told we needed to hand over multiple future decades of increased taxes to prop up has merely been playing games with the numbers on their balance sheets to only give the appearance of being solvent after all. I can assure you there is one thing Warren Buffett has said that rings true, “ when the tide goes out, you get to find out who has been skinny dipping the whole time”. It seems now that there have been many banks “skinny dipping” while the endless credit bubble tide was in and they didn’t think they should slip into shore and get their shorts on as they watched the tide start to go out, or even once the tide was out and they were exposed too! Now the question becomes, how many more of these banks are over exposed and fudging their numbers? How much damage will these surprises cause and will these shock discoveries end up causing more damage in the big picture?

After all, how can we really expect the banks to honestly tell us how exposed they really are? They are of the opinion that it is ‘in the interest of the greater good’ to tell the public what they need to hear so that they can rearrange the deck chairs in hopes of shoring up their balance sheets as opposed to causing fear by being honest that would create a bank run that would surely drop the bank to its knees and complicate their lack of liquidity tremendously. After all if telling a white lie avoided a bank run that would collapse a bank and destroy the life savings of all the depositors who trusted the institution it would be for the ‘greater good’. . . . . right? This is the inconceivable dilemma that plagues the banking system and the central banks who have permitted these banks to run amuck in the interest of ever increasing profits to attract the average investor into the stock market. Do you warn the public how overleveraged the banks are and help them wisely apply their investing dollars? Or do you allow a little fudging of the books to avoid a panic and hopefully insight a recovery in the interim with never ending bailouts and stimulus that will cover up the tough decisions that were made for the ‘greater good’?

Remember the solution early on was the ‘mark to market’ policy for banks inside the United States. This phenomenon permitted the banks to take a home loan that was written for $1.2 million who’s collateral had shrunk in value to lets say $650,000 to not only value it at the original origination value but to add up to 10% value on top of that, and then to count it as an asset on their balance sheet as opposed to a liability! So if this was the early solution upon which all other accounting tricks were built upon, how do really think that these policies could in fact be for the ‘greater good’? Some reports say that after this solution (along with other fancy accounting modifications) was applied & the banks got to an acceptable appearance of stability, these very banks then decided to take this magically crafted balance sheet and then leverage the new market capitalization to continue to expand the derivatives bubble that started at roughly $1.5 quadrillion when the housing crash began to a current estimate of roughly $2 quadrillion!

Rest assured as the next tide goes out, and I can assure you the European convulsions will push the tide itself, we will be surprised to see how many banks really haven’t changed a thing with how they got into these problems and have actually expanded their risk exposure! Can you really afford to doubt this information when you see the govt. doctoring the employment and inflation data everyday right in front of your face? Of course if this massive global depression was averted in the end, the history books would probably argue that the greater good was served and the full scope of the crisis was avoided thanks to these grey area moves, but I’ m afraid we have yet to get out of the woods. Be an adult here and accept that this crisis is unlike anything you have ever had to face and that this time it may be different. Accept the fact that your ‘cognitive dissidence’ is trying to help you process the crisis in a palatable way but will only cause more harm in the long run. The time to grow up is now and accept that you need to move at least a third, if not half, of your investment dollars into a safe haven that will weather the storm from a position of strength. Establish your “Plan B” in physical gold & silver bullion today and allow yourself to participate in the sound money debate with alternative currencies, currencies that can’t be printed by by desperate govt.s and central banks. Remember that inflation can turn into hyperinflation and recessions can turn into depressions when the world is locked in a global currency war as we are currently. Tick, tock.

P.S. Notice that the truth came out and the stock price dumped, who really lost here? The shareholders and the depositors, that’s you the average citizen who is doing their part and listening to the talking heads on the TV who are telling you to keep your shares of the banks (if not to buy more!) in your portfolio and leave your life savings in your bank account and trust the banks because their balance sheet looks solid!