Banks are increasingly finding creative ways to lessen the impact of shaky loans on their bottom lines, shifting them to subsidiaries or changing their definition of non-performing, the Wall Street Journal reports—a legal, if not exactly confidence-inducing, strategy. "Spending all the time gaming the system rather than addressing the problems doesn't reflect well on the institutions," one analyst said.
The hide-and-seek game, which helps profits—and may appease investors—in the near term could result in a wave of defaults that eventually will catch up with lenders, decimating earnings. Some banks have shifted troubled loans to subsidiaries, allowing them to escape scrutiny of federal regulators. That, too, could cause pain if the subsidiary collapses.