“Generally Accepted Accounting Principles”: How Do Consumers Evaluate Bank’s “Statement of Condition” Advertising Plea?

Today’s banking industry climate, with mortgage meltdown disasters laying waste to financial institution books, demands consumers pay attention and perform due diligence before depositing their hard earned monies. The following ad has a unintended “Enron” feel to it in my opinion.

In what may become a defense mechanism brought on by the IndyMac Bank failure and “run” lines reminiscent of the stock market crash of 1929, local small bank Luther Burbank Savings of Northern California has gone on a reputation management campaign in local print media. The campaign has a simple message–we are solvent and in good shape therefore don’t be afraid to deposit money with us.

“Statement of Condition”

This is an advertisement comprised of a letter to customers touting the “exceptional year 2007 was for the bank with deposit growth of 24%. The statement also addresses the bank’s 25th Anniversary and how “relationships developed. . . are among our most rewarding results.”

Assets

This section of the add gives a accounting line item breakdown as follows:

1. Cash & Securities: $14,569,000

2. Loans Receivable: $2,968,032,000

3. Other Assets: $69,430,000

Bottom Line= $3,052,031,000

Liabilities & Capital

Deposits: $2,129,633,000

FHLB Advances: $642,811,000

Other Liabilities: $21,126,000

Capital: $258,461,000

Bottom Line= $3,052,031,000

Note-Disclaimer :The ad features in tiny print the disclaimer as follows: “This unaudited statement is prepared in accordance with generally accepted accounting principles.

Analysis

Does this disclaimer really mean that they can twist the numbers in any fashion legally to make them look more solvent? Is this institution fooling itself? Fooling consumers? Or is this a form of advertisement we will see moving forward for every banking institution?

In my opinion this type of advertisement, in the face of the Enrons and cooked books business culture we have suffered through in the past, is nothing more than meaningless fluff.

Why fluff? Because for this ad to have ANY validity they should have two independent accounting firms, with no PRIOR contract work with Luther Burbank, conduct separate audits for transparent and objective information. That would be the only believable scenario in my opinion