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Bank Earnings: The Hole Truth

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Wells Fargo, Goldman, Citi harm public trust in the banking system.

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As a kid, I liked to watch a lot of courtroom dramas. And thanks to Ironside, the phrase "The truth, the whole truth, and nothing but the truth, so help me God" is forever embedded in my brain.

But having read more than my fair share of financial-services earnings and pre-earnings releases over the past week, I have to wonder if we've forgotten the enormous difference between the facts and the truth: Just because lawyers and accountants say the disclosure is accurate and sufficient, doesn't make it true.

Now I recognize that earnings season has always been filled with managements' attempts to accentuate the positive, but -- as I suggested the other day on the Buzz & Banter -- I'd hoped that financial services firms might exhibit some level of humility in their reporting this season, balancing the systemic progress made since the fourth quarter with appropriate concern for our economic future - and, more importantly, adequately reserving for it.

Alas, I would offer that -- had you awakened from a coma last Thursday to read Wells Fargo's (WFC) "record" pre-earnings release "white bunny" -- I suspect you would have been more than a little befuddled to learn that, barely 6 months ago, the world was on the brink of a systemic financial collapse - and that unemployment was currently approaching 9%.

Put simply, the facts and the whole truth don't coincide, as far as I'm concerned.

So what would I have said differently, to help close the gap?

To Wells Fargo: I would never have used the word "record." While technically correct for the legal entity that is Wells Fargo, if one looks at the combined past quarterly earnings of Wachovia and Wells, first quarter 2009 results were hardly a "record."

Furthermore, I would have said that, during the first quarter of 2009, the firm benefited by some X billions of dollars, because of the "de-risking" (writedowns taken) at Wachovia prior to year's end.
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