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Owning Up to ‘Rounding Errors’
Not long ago, I sat through a presentation by Citigroup’s vice chairman and it reminded me of my time living in Asia in the mid 1990s.
Back then, I was a young journalist in Hong Kong, just out of graduate school and with a window seat on the greatest exhibition of capitalistic transformation my generation will ever see. The numbers coming out of China were (and still are) remarkable. If it wanted to, the Chinese could have seemingly facilitated a quarterly GDP above 100%. Gold was condensing before people’s very eyes.
I’ve recalled the Chinese census of 1993 before, but it deserves repeating here again. To great fanfare, the Chinese declared that its census had counted 1 billion citizens. A few months later – and with much less fanfare and press coverage – China owned up to the fact that it made a mistake. The correct number was 1.3 billion. China has miscounted by 300 million, yes, 300 million! That’s greater than the entire population of the US at the time. The lesson: when you are dealing in such big numbers, the mistakes are on an equally big scale.
And that’s how I felt listening to the presentation by Edward J. Kelly III, Citi’s vice chairman recently. All the numbers in his deck were abbreviated to billions. And if in a few months, Citigroup will find a mistake? It’ll be on the order of the Chinese census of the mid-1990s.
All this is my way of saying that the nation’s largest banks remain unmanageable. Their “rounding errors” amount to seismic shortcomings. The spread of them, the scope of them, remain vast and overarching. And just because they count ample Tier 1 capital cushions in their balance sheets today does not change the “unmanageability” of these banks. The sooner we own up to this, and attempt to do something about, the better off we’ll all be.
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