How The Mighty Have Fallen – An Update On Who Audits Whom

With so much news of crises, mergers, acquisitions and jilted brides this weekend, I thought it time to respond to some of the questions I’ve received about the impact of all this activity on the firms and their staff.  Given the already uncertain future for so many in the Big 4 and their clients and the purges that have already occurred, it’s time to update my scorecard of the major financial institutions that have already been affected by the subprime crisis and their auditors.

In March of 2008, I put out an update, updating a prior post from November of 2007.  Changes as of September 15, 2008 are in RED.
Merrill and Bear Stearns shared Deloitte as an auditor, who also had American Home.
Bear Stearns was bought during the first bailout by JP Morgan , which is audited by PwC. 
Score one for PwC and one loss for Deloitte.

Merrill is asking to be bought by Bank of America this weekend.  If that occurs, Deloitte will lose another major client to PwC.

Doesn’t bode well for Deloitte or for their staff.  Maybe they were the only ones who saw this one coming…

Merrill (Deloitte) and Citibank (KPMG) had suits filed. What happens to the suits that were filed against Merrill related to subprime?

Fannie Mae and Freddie Mac were nationalized.  Which auditor won the prize for the nationalized bank?  Fannie’s Deloitte or Freddie’s PwC?  Has it been decided?  Won’t both of them be conflicted given the suits that have already been filed.  And KPMG is already conflicted given the fact Fannie was already suing them for the prior issues.  Maybe EY will get a fresh, bright starting line drawn for them and take the job?

Lehman Brothers is expected to file Chapter 11 any moment now due to the hubris of Dick Fuld. But I could have told you they were never going to make it.  
Auditor loser:  EY, long time auditor having inherited the job when LEH spun off from American Express.  No one wins on this deal.
Northern Rock (PwC) has been nationalized.
Countrywide (KPMG) seems to think “The Little Engine That Could” is a strategy role model. And Bank of America (PwC) has bought the farm on that one.
Where have I heard that before?
Rogue traders figure into SocGen (Deloitte) and MF Global’s (PwC) issues, according to them.
6 replies
  1. clk
    clk says:

    With the impending closure of Lehman, it begs the question, why wasn’t the problems spotted very much earlier in the 1st quarter of 2008 before the release of the 2007 financial results? Surely all the problems we see today could not have materialised over the last 6 months or so?

  2. Content
    Content says:

    I think the problems certinaly could hae developed this quickly, especially when you look at the structures of the transactions that have gotten the big banks into trouble. They were designed to score big for the bank but were based on bubble assumptions.

  3. Anonymous
    Anonymous says:

    They still cannot value a lot of lehman’s assets. They could not have known the whole story and will not know for a while

  4. Anonymous
    Anonymous says:

    I love you FRANCINE MCKENNA.

    First, because you are probably irish. Second, because i doubt you work for MS or GS in an audit function.

  5. Francine McKenna
    Francine McKenna says:

    @Anonymous who “loves” me… I am half Scottish and half Italian. Never Irish, but I do like Irishmen mas or menos.

    I do not work for anyone but myself and my clients. It gives me the freedom to write. And the freedom to collect anonymous admirers (and detractors) with words alone.

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  1. […] along about firms like AIG, Lehman, Fannie Mae and Freddie Mac,  Merrill Lynch, Goldman Sachs, and Morgan Stanley. There have been a lot of false starts, last minute deals, and disappointments during the last few […]

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