Bank profits are illusory

Thanks to some accounting trickery, firms are able to magic losses into profits, says Tim Bennett. Here, he explains how, and what investors should watch out for.

How can you turn a loss into a profit without actually making more money? Just ask your banker. Around 25% of the latest third-quarter profits reported by the US's four biggest banks was down to accounting trickery. British banks pull similar tricks, using loan loss reserve accounting'. Here's how it works.

The problem with dodgy loans

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.