Wednesday, August 24, 2011

BofA reacts to an article that says things remarkably similar to what I wrote 13 days back!

On August 10, I wrote about Bank of America, and headlined my blog entry with the words, The Death Spiral beckons ... . I then wrote a follow-through piece, on  August 16, highlighting the gathering storm clouds around BofA. Then, I attempted to put what I wrote about BofA into perspective for Indian readers of my blog, by explaining how serious the situation of BoA was, really, for itself and for the US economy, and indeed, for the rest of the world. 

On August 23, Henry Blodget, a former Wall Street analyst and currently CEO of Business Insider, an online financial news and views publication wrote about Bank of America. Blodget has cited many more figures - and exaggerated at least two, according to Bank of America's official Press Release. But Blodget exulted, 'Oh My Goodness: Now Bank of America is blaming its Collapsing Stock on Me!' He admitted that BofA was right about one of the two points of rebuttal, and updated the article to reflect the correct figure.

Why do I write about Blodget and BofA? I think I may have just influenced what Blodget wrote. Of course, it is entirely likely (and probably true) that Blodget arrived at the same conclusions as I did on his own. But that cannot obfuscate the fact that the substance of what he wrote on August 23 is remarkably similar to what I wrote in the three pieces referred to above. He even uses the same phrase - the death spiral - in his piece. Now, that is a coincidence, indeed!
Imitation, it is said, is the sincerest form of flattery. I should feel flattered indeed, except that
(a) Writing about BofA pained me, but when elephants flail around, ants get trampled. So I thought a warning was in order, to point out something the bank was hiding behind accounting opacity. Now, I have no illusion about being so well-regarded that BofA or the US economy or Wall Street would take note. But then, through Henry Blodget, exactly that seems to have happened!
(b) When what (in my view) is almost inevitable happens, those who took evasive action to the extent they could (after understanding what I, or for that matter, Blodget, had to say) will have me to thank in a small measure. That is the only moral justification for predictions of financial doom (which have a disconcerting habit of being self-fulfilling these days) in writing. What makes me puke is that Blodget is enjoying the discomfiture he is causing BofA.

Of course, Blodget has not cared to acknowledge that he has read my blog and been influenced by what he wrote. But then, how will he know that my blog had more readers in the United States than in India in the week upto August 16? (you need to be logged into Facebook to see that link).
Blodget probably thought he was the only guy in the US who read it. But then, even after being in the online news business, I am sorry that he has not fathomed the power of the Internet.
Now to Bank of America again - their Press Release  reproduced here defends itself weakly by talking of its tangible book value per share as of June 30. This is a non-GAAP measure by BofA's own admission in its Balance Sheet (read the footnote to my death spiral writeup). GAAP means Generally Accepted Accounting Principles. Non-GAAP measure thus means, by definition, not a generally accepted accounting measure. If you read what BofA wrote about Goodwill, the only figure I concentrated on in the death spiral blog entry, you will realize that BofA knew it was on tricky ground there.

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