Accounting changes 'will hit US banks with credit card bill'

3 December 2008

Changes to accounting rules that will force US banks to move credit card debts onto their balance sheets could swallow up funds allocated through the government's bailout programme and leave institutions facing spiralling exposure to risk, an expert has said.

Wall Street analyst Meredith Whitney of investment bank Oppenheimer said last week that as much as $110 billion in taxpayer funds issued to banks through the Treasury's Trouble Asset Relief Program (Tarp) could be diverted to "plug holes" in balance sheets caused by more writedowns and the potential for bad credit card debts, the Guardian said.

According to Ms Whitney's estimates, when credit card debts are included, Tarp participant Citigroup is exposed to around $1.2 trillion in off-balance sheet debt. Meanwhile, JP Morgan is exposed to $735 billion and the Bank of America faces $73 billion.

Not all of this debt will be moved onto their balance sheets under the new rules but, Ms Meredith warned, these figures do not include off-balance sheet mortgages.

So far, the total cost of Tarp and the nationalisation of mortgage lenders Freddie Mac and Fannie Mae is estimated at over $1 trillion, the Guardian said.

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