July 30 (Bloomberg) -- At a time when the financial industry’s credibility is at an all-time low, you would think Wall Street’s finest would break their necks providing transparency.

Not so. Stock analysts continue to promote corporate earnings lies, insisting that net income isn’t really what investors need to know.

Instead, their earnings estimates ignore often huge expenditures that can’t help but affect a company’s health.

In analystspeak, Intel Corp. wasn’t hit with a $1.45 billion fine from the European Union in the second quarter for anticompetitive practices.

After setting aside funds to cover the fine, which Intel is appealing, the semiconductor-maker had a quarterly loss of $398 million, or 7 cents a share. Disregarding the fine altogether, analysts maintain the company earned 18 cents a share, beating their average estimate of 8 cents.

As Wall Street tells it, the employee stock options Google Inc. granted in the second quarter didn’t cost its shareholders $293 million.

Google, according to generally accepted accounting principles, earned $1.48 billion, or $4.66 a share, in the period. Not enough for Wall Street, which prefers to say the company earned $5.36 a share, leaving out the cost of stock options.

Tangled Numbers

Business journalists know what’s going on and in their stories emphasize net income -- which accounting authorities say is where the focus should be. Still, if reporters want to show how the latest report compares with earnings estimates, they are stuck using analysts’ predictions.

Viacom Inc., an entertainment company, this week reported second-quarter net income of $277 million, or 46 cents a share. Analysts had estimated profit as if money Viacom paid out in severance in the period wasn’t the real thing. On that basis, Viacom earned 49 cents a share, beating the average estimate by 1 cent.

Time Warner Inc., a rival of Viacom for entertainment dollars, said it earned $519 million, or 43 cents a share, in the quarter. Analysts insist Time Warner earned 45 cents, excluding, according to Bloomberg data, costs related to litigation and asset sales. Lawyers must work for nothing.

By similar Wall Street reckoning, the expense of cutting jobs and selling an asset that reduced McGraw-Hill Cos. second quarter earnings per share by 10 percent was immaterial.

Phantom Plane

Analysts also say investors should ignore $129 million that Textron Inc., maker of small airplanes, helicopters and golf carts, charged against net income in the latest quarter. Included was the cost of shutting a plant for an eight-seat jet Textron decided not to build.

General Electric Co., which makes jet engines and electric power equipment and has a financial services arm, had a second- quarter profit of 24 cents a share. GE and the analysts emphasized earnings from continuing operations, which at 26 cents a share, exceeded their estimate by 2 cents. A $194 million loss from discarded businesses was discarded.

Wall Street’s big earnings lies must exasperate investors. They already have lost faith in the reported earnings of banks that are the center of the financial system.

Exactly how impaired are banks’ impaired loans? The Financial Accounting Standards Board, under political pressure, has ruled that the banks decide. Might as well ask a six-year- old who took the cookies.

The argument is that “adjusted” earnings make for a smoother picture of company performance.

Cooking the books to smooth out earnings from quarter to quarter is what hoodwinked shareholders of Fannie Mae and Freddie Mac several years ago.

The companies, which support the mortgage market by buying loans, ended up charging billions against earnings and executives were fired. Fannie and Freddie subsequently suffered from the collapse of the mortgage market, and are now wards of the government. Investors who bailed out after the fraud was revealed were the lucky ones.

(David Pauly is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: David Pauly in Normandy Beach, New Jersey dpauly@bloomberg.net

Last Updated: July 29, 2009 21:00 EDT