Citigroup, Inc (NYSE: C) and AIG (NYSE: AIG) classified more than $11 billion in loans as sales during the second half of 2009, hiding the two companies’ risk levels, according to a report with ABC News citing SEC filings.
The announcement came in the form of letters from the Securities and Exchange Commission which were first drafted on April 13th and made public on Thursday. The letters gave details about the two firm’s repurchasing agreement accounting between 2007 and 2009.
The news comes on the heels of a similar announcement from Bank of America Corp (NYSE: BAC) last week which stated that the Charlotte-based bank had classified as much as $10.7 billion worth of short-term lending and repurchase deals as sales.
Repurchasing agreements (repos) are forms of financing which allow a borrower to opt for cash loans once they have been given financial securities to the lender as collateral. The borrower would then buy back the collateral form the lender at a later date to pay off the loan. Classifying a repurchase agreement as a sale masks the leverage of a company as the assets are removed from its balance sheets.
The SEC announced in March that it made 24 inquiries about 24 financial firms to determine whether or not their repo activities had been similar to those practiced by Lehman brothers.
