In The Wall Street Journal, David Reilly’s Heard on the Street column probes the issues Wall Street banks have had pricing exotic financial instruments hard-hit by subprime turmoil, and what those problems will mean for their earnings. Goldman Sachs, Lehman Brothers, Morgan Stanley and Bear Stearns begin reporting results next week, and investors will be scrutinizing income statements closely for signs of credit fallout. “Under a new accounting rule, firms are distinguishing between financial assets that have real market prices versus those based on models and those that are little more than management guesses,” the article says. “The upshot: Given current market stresses, bigger portions of the firms’ securities holdings might fall into the category of management guesses, and relying on these estimates might not help restore investor confidence.”
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