OH. NOW WE’RE ALL SUPPOSED TO IGNORE LOSS RESERVING.
The revisionists never rest:
So bank earnings since the peak of the financial crisis in 2008 have been exaggerated to a large degree, in both directions, by the shuffling of money into and out of reserves.
A more reliable gauge of the banks’ health, then, would be not the bottom line of the income statement but rather the top-line revenue, which is not affected by rainy-day reserves. [Emph. added]
Except that, as noted here last week, when the banks were posting huge losses in 2008 and 2009, no one thought to point out that the bottom line numbers were being “exaggerated by the shuffling of money into and out of reserves.” At the time, investors took those huge reserve additions seriously. It’s not clear to me why they should ignore the reversals now. . . .