The profits of several of the major banks, including Citibank and Bank of America, exist only because of this accounting trick:
They are claiming the decline in the price of their debt (bonds) as a profit.
In other words, the fact that people think they'll go bankrupt and default on their debt, so people are selling their bonds at 20% of face value -- PROFIT! Now, if they actually had the cash and ability to buy all that debt back at its current discount, this would be true. But they don't have that much cash, and more importantly, while some bonds will sell at 20% of face value, there will always be a bunch of bond holders who won't sell and will instead wait to take their chances in bankruptcy court (or hope that the bailout gives them their money). They're extrapolating from being able to buy some debt back cheaply to being able to buy it all back cheaply, which won't work.
Tip to the Financial Times for reporting this in two or three different columns, which I can't point you to because my newspapers aren't here.
UPDATE: Burrow Owl in comments has pointed to the relevant accounting standards (SFAS 159) which allow them to do this. http://www.dailykos.com/...
Without this trick, it appears that many of the "seriously troubled" banks would have reported losses -- at least one of the major ones in England as well as the big US ones. This is on top of the Goldman Sachs "pretend December didn't exist by changing our fiscal year" trick, and various other tricks.
This is legal -- they are simply "marking to market". The scam is that they are doing this without any regard for whether the market would actually allow them to repurchase all their bonds at 20% of face value, which it wouldn't -- but the financial standards don't reflect that.
Obviously, the reported "profits" were largest for the banks closest to defaulting on their debt. (This can also make their balance sheet look better. It doesn't clean up the cash flow statement though.)
I don't have a full list of which banks did this (most of the big banks, but not General Electric Capital, General Motors, or similar operations) or what their profits/losses would have been without it. It could be researched by anyone caring to look deep into their reports, but I just stay away from the fraud-based sector of the economy in my investment research.
I haven't seen a diary on this so I figured people should know what the banking "profits" meant.