Waiting for the other financial shoe to fall

Now that the federal government has bailed out several of crumbling national financial houses, the problems with those companies are fixed. Right?

Wrong, according to Audit Integrity, an independent research firm that rates more than 7,000 public companies based on their corporate integrity.

“The vast majority of financial services companies being bailed out under the Federal Troubled Assets Relief Program (TARP) are likely in worse condition than publicly disclosed,” noted a statement from Audit Integrity.

The company concludes that more than 80 percent of TARP financial services companies have a “Very Aggressive” or “Aggressive” accounting and Governance Risk (AGR) rating. A high AGR rate means such companies have a high statistical likelihood they will be forced to restate financial statements, thus exposing deeper problems.

“As a group, these are very risky companies. The use of federal money to bail them out should be pause for concern on several levels,” said Jack Zwingli, CEO of Audit Integrity. “At a minimum, before we hand over government funds to these firms, we should demand a thorough review of their accounting and corporate governance practices. The recipients of the bailout money should be required to run their business with integrity.”

Of the 14 financial services companies that received “Very Aggressive” ratings, ten were among the recipients of the largest amounts of TARP money, including: American International Group, Citigroup, Goldman Sachs Group, J.P. Morgan Chase & Co., Merrill Lynch & Co. and Morgan Stanley.

General Motors and Ford Motor Co. also have low Audit Integrity ratings.

Fortunately, most companies are conservative in their bookkeeping. Two-thirds of the more than 7,000 publicly-traded North American companies rated by Audit Integrity have “Average” or “Conservative” ratings.