NEW YORK (Bloomberg) — Banks and securities firms, reeling from record losses resulting from the collapse of the mortgage securities market, are failing to acknowledge in their income statements at least $35 billion of additional write-downs included in their balance sheets, regulatory filings show.

Citigroup Inc. subtracted $2 billion from equity for the declining value of home-loan bonds in its quarterly report to the Securities and Exchange Commission on May 2 without mentioning the deduction in the earnings statement or conference call with investors that followed. ING Groep NV placed 3.6 billion euros ($5.6 billion) of negative valuations in its capital account, while disclosing only an 80 million-euro depletion to income.

The balance-sheet adjustments are in addition to $344 billion of write-downs and credit losses already reported on the income statements of more than 100 banks. These companies have raised $263 billion from sovereign wealth funds, their own governments and public investors to shore up capital. The balance-sheet write-downs also reduce equity, which needs to be replenished. Adding the $35 billion leaves the banks with a $116 billion mountain of losses to climb.

"The smart people are the ones who've identified the problems, put them out there in full transparency, and addressed them by raising more capital," said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York. "There is still billions of dollars of crap out there that hasn't worked itself through the system. Banks need more capital to work that all out."

Taking losses on a balance sheet instead of an income statement is acceptable under accounting rules, which make a distinction between so-called trading books and long-term investments. Changes in value on the trading side go straight to revenue. Changes in the value of bonds held for the long haul can be marked down on the equity line of a balance sheet, as long as the declines aren't considered permanent.

Banks that are more willing to acknowledge their balance-sheet write-downs, such as Amsterdam-based ING, say the valuations of assets will be reversed when markets recover. ING, the biggest Dutch financial-services company, said in its first-quarter earnings report last week that the drop in the value of bonds tied to home loans that are held to maturity is irrelevant as long as the underlying mortgages don't default.

Under international accounting standards, ING doesn't have a choice between including the negative valuations in its income statement and keeping them on the balance sheet, said spokeswoman Carolien van der Giessen.

Keeping those markdowns off income statements just delays the realisation of the losses, according to Brad Hintz, a New York-based analyst at Sanford C. Bernstein & Co.

"The banks that have taken advantage of this accounting approach are going to have a price to pay later," said Hintz, the third-highest ranked securities analyst in an Institutional Investor magazine survey. "You don't avoid the price. Those that have taken it all in their income statements will come out with clean balance sheets and move on."

A review of the balance sheets and regulatory filings of more than 50 banks showed that 20 of them chose to keep some sub-prime related losses off their income statements. The marks were recorded instead on balance-sheet items labeled "other comprehensive income" or "revaluation reserves".

Seattle-based Washington Mutual Inc., which has taken $217 million of sub-prime-related write-downs against profits, kept a bigger amount on the other-comprehensive-income line of its balance sheet, which swung to a $782 million loss in the first quarter. Fortis, the Amsterdam and Brussels-based bank, put 990 million euros of losses in revaluation reserves, in addition to the 3.3 billion euros it reported on its income statement.

Merrill Lynch & Co. in New York, which has booked $31.7 billion from market markdowns in its income statements, is keeping another $5.3 billion of losses on its balance sheet as other comprehensive income. The revaluation reserve reduction of £740 million ($1.4 billion) at London-based Lloyds TSB Group Plc is bigger than the £667 million charged against profit.

Officials at Citigroup, Merrill Lynch, Washington Mutual and Fortis declined to comment. Lloyds TSB spokeswoman Kirsty Clay said none of the assets included in the available-for-sale reserves are considered to be "permanently impaired."

The write-downs aren't finished yet. London-based Fitch Ratings Ltd. expects as much as $110 billion in additional losses on subprime securities.

Declines in asset prices have spread beyond sub-prime though, affecting other mortgage bonds, securitised car and student loans, leveraged lending that backs private equity buyouts and credit derivatives. When all that is included, the IMF estimates that total losses from the US subprime debacle will reach $1 trillion, of which $510 billion will be borne by banks. That means some $130 billion in losses remains to be taken.