Monday, October 6, 2014

I'm going to let someone else bitch about the New York Times for a while

Besides, when itt comes to take-downs of bad financial journalism, there's no one sharper than Felix Salmon.

In "Annals of NYT innumeracy, Bank Rossiya edition," Salmon takes apart a recent article entitled “It Pays to be Putin’s Friend.” No doubt the basic premise is true, but the examples described by the NYT don't support the point at all. Salmon points out lots of sloppiness in the piece but this is arguably the money shot.
So [Sergei P.] Roldugin took out a loan, of unknown size, to buy a stake of 3.2% in Bank Rossiya. How on earth does that make him worth anywhere near $350 million?

And here the light slowly dawns — the NYT has taken the sum total of Bank Rossiya’s assets, and used that number as the the value of the bank itself. ($350 million, you see, is 3.2% of $11 billion.)

Of course you can’t value a bank by just looking at its assets, you first need to subtract its liabilities. The NYT story leads with “State corporations, local governments and even the Black Sea Fleet in Crimea” moving their bank accounts to Bank Rossiya — all of those deposits are liabilities of the bank, which need to be subtracted from its assets before you can even begin to arrive at an overall valuation for the bank itself. Just looking at the assets, without looking at the liabilities, is a bit like scoring a sports game by looking only at the points scored by one team.

Probably, most of the value in Bank Rossiya is to be found in the commodity and media assets which it seems to have been able to acquire on the cheap. (The bank itself, qua bank, might well be worth nothing at all.) And no one’s going to find out the true value of those assets by looking at the official size of Bank Rossiya’s balance sheet. It seems to me, indeed, that Bank Rossiya is in large part being used as a holding company, a reasonably safe place where Vladimir Putin’s billionaire friends can keep some of the valuable assets they’ve managed to acquire over the years. I’m just guessing here, but I doubt they have any particular desire to share 3.2% of those assets with some random cellist [Roldugin]. To simply take the official size of Rossiya’s balance sheet, and declare it to be the value of the bank: that’s just bonkers.

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