This morning, UK-based mortgage lender Bradford & Bingley reported its 2007 results, featuring a 5% rise in pre-tax profit, 6% rise in earnings per share and return on equity of 19.1%, up from 17.4% in 2006. "These results demonstrate the strength of our underlying business," said CEO Steven Crawshaw.
Why, then, were B&B's shares savaged, losing nearly a quarter of their value by the end of trading in London this evening?
The key is the company's focus on its "underlying" performance. The items excluded from these metrics include impairments on SIVs and CDOs, instruments that investors are finding very relevant to the fortunes of financial services companies these days. Including these items in B&B's 2007 figures reduces pre-tax profit by £226m ($443m), resulting in a decline of nearly 50% from 2006, a far cry from the 5% rise suggested by the headline results. Analysts' notes criticised the company's
pro-forma presentation, possibly bringing some extra sting to the sell-off.
What's more, the company excluded "certain items that are the result of long-term strategic decisions." As suggested by FT Alphaville, does this mean that bad management decisions can now be considered exceptional? If so, I imagine some CFOs would enjoy roadshows more if they could exclude wrongheaded decisions by CEOs when presenting financial results.
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