Bad At Math

For those paying attention, Ernst & Young published a report stating that China’s banks held up to $911 billion in nonperforming loans (NPLs). The official estimate is $164 billion. The Chinese banks, at least two of which are preparing for Hong Kong IPOs, reacted with expected anger, calling the figures “severely distorted”, “severely wrong”, and “absurd”. Shortly thereafter, Ernst and Young withdrew the report and apologized for its “erroneous” publication.

Apparently the report had not gone through the normal internal review process. I would also like to mention my surprise that the company would allow such a high-profile error to occur, especially given the still-recent scandals that rocked the accounting industry. It is doubly unfortunate that the report should have reflected so poorly on the Chinese banks, the four largest of which are significant recipients of Ernst and Young’s auditing custom. A spokeswoman for the firm hoped that this gaffe would not affect the company’s business in China.

Also in May, reports from PricewaterhouseCoopers, McKinsey, and Fitch featured similar uncharacteristically large estimates for NPLs. I eagerly await their corrections as well. *cough*

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