David Malone looks at the end of the year auditing reconciliations in the Banking sector and notices that auditors are very forgiving of lies – here’s the Irish angle, as once again, Irish banks are no angels.
“And what of the Risk Officers and Risk and Audit Committees of the banks themselves? This is after all where the ritual of Reconciliation mostly takes place. Can we look to them for honesty and integrity? Let me put it this way. Bank of Ireland (not to be confused with the Central Bank of Ireland), just appointed (on December 23rd) a certain Mr Patrick Mulvihill to its Board as a non-executive Director AND to its Audit Committee and Risk Committee. Mr Mulvihill spent much of his career at Goldman Sachs where he was on the board of GS Europe and on their Audit Committee. Make of that what you wish. One thing’s for sure, he will be perfectly suited for the job he’ll be expected to do.
He, like all those working for and around him, will decide if the sovereign bonds of Italy and Spain, for example, are to be booked as risk free AAA rated sovereign Euro bonds, or risky bonds which the market won’t touch for much less than 7%. Sovereign bonds are considered virtually risk free in the part of the bank which considers which assets count as solid capital to underpin liabilities. But are traded as risky and therefore lucrative in another. Will the banks book the profit of the risky version but asses the risk weighting from the risk free version? It’s like Quantum mechanics for liars. You get to have it be a wave or a particle depending on which suits you at a given moment.Which will it be? Are sovereign bonds risk free or lucratively risky?
And what about mark to market valuations? Will the Risk Committees and Audit Committees give a clear valuation of the banks assets? Or will they do what they did earlier this year, and move any ‘risky’ assets, that they have valued at ‘mark to model’ fantasy prices and which would surely lose a lot of ‘value’ if ever they were marked to market – move them from the ‘Available to Trade’ column where market to market is required, over to the ‘Hold to Maturity’ column where mark to model is fine? What do you think? Will they go for honesty and transparency or press a few keys and move billions from one column to another? And remember the assets hidden from view like this won’t be ‘held to maturity’ if the bank gets in trouble. At that point the bank will move them back again and sell them and the accounting fiction will become clear for what it is – a lie.”