WSJ | Subsequent-Events Accounting: Fraudclosure Deals Came Just in Time

Whitewash

Mortgage Deals Came Just in Time

Major banks pushed to complete an $8.5 billion legal settlement with federal regulators this past weekend so they could book the deal’s costs in their fourth-quarter results and present a cleaner slate to investors in 2013, according to people familiar with the talks.

The timing of the settlement of alleged foreclosure abuses, announced Monday, allowed banks including Bank of America Corp., J.P. Morgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. to take advantage of so-called subsequent-events accounting.

The same rules apply to Bank of America’s $11.6 billion pact with Fannie Mae FNMA over buybacks of questionable mortgage loans.

Monday’s settlements are “almost the textbook example” of when subsequent-events accounting comes into play, said Robert Willens, an accounting and tax expert.

When certain events occur after the end of a fiscal quarter or year but before that period’s earnings have been disclosed, U.S. accounting rules require companies to count the impact of those events in that period’s results.

That means the banks’ 2013 results will be free of those big obligations, giving major lenders better 2013 results to present to investors at a time when sentiment on bank stocks is turning more positive. The KBW index of commercial-bank stocks is up 3.8% this year after a 30% gain in 2012.

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