As a followup to last week's "Banks to Write-UP Assets?" we have this from Bloomberg:Boss, that trade just became an investment.
-Old, old trader's joke.
Four days after U.S. lawmakers berated Financial Accounting Standards Board Chairman Robert Herz and threatened to take rulemaking out of his hands, FASB proposed an overhaul of fair-value accounting that may improve profits at banks such as Citigroup Inc. by more than 20 percent.
The changes proposed on March 16 to fair-value, also known as mark-to-market accounting, would allow companies to use “significant judgment” in valuing assets and reduce the amount of writedowns they must take on so-called impaired investments, including mortgage-backed securities. A final vote on the resolutions, which would apply to first-quarter financial statements, is scheduled for April 2.
FASB’s acquiescence followed lobbying efforts by the U.S. Chamber of Commerce, the American Bankers Association and companies ranging from Bank of New York Mellon Corp., the world’s largest custodian of financial assets, to community lender Brentwood Bank in Pennsylvania. Former regulators and accounting analysts say the new rules would hurt investors who need more transparency, not less, in financial statements.
Officials at Norwalk, Connecticut-based FASB were under “tremendous pressure” and “more or less eviscerated mark-to- market accounting,” said Robert Willens, a former managing director at Lehman Brothers Holdings Inc. who runs his own tax and accounting advisory firm in New York. “I’d say there was a pretty close cause and effect.”>>>MORE
HT: The Columbia Journalism Review, who write:
...It’s funny, you never heard much complaining about mark-to-market when prices were increasing.
The problem that’s arisen is what happens when there’s no market. That’s part of the problem with the complex securities that the banks underwrote and that are weighing them down—they’re illiquid, meaning they don’t trade much. Since the crash, few have traded at all, so there’s no real price to mark to.
The banks say this is why they shouldn’t have to mark-to-market. After all, they say, they’re not trying to sell these things now, so why should they have to mark them down. They say they want to hold them to maturity and the underlying cashflows imply a value much higher than what the marks would suggest.
Which brings back around to my oft-repeated point that we need to know more about what exactly is on the books. What loans are in these securities? How much cash are they throwing off? I’ve yet to see anyone take a real good look at that. I’m waiting....