Thursday, April 2, 2009

Markets: Why the FASB Decision Matters

When I was younger I knew that I was not a math prodigy. Although I was competent in basic stuff, I had trouble with the more advanced concepts. In the eighth grade I met a certified (and maybe certifiable) genius. We'd do homework together and she would hang the new information on whatever framework her mind had created, whip through a half dozen problems and start talking about who was dating who while I was still checking my spelling on "imaginary number".

It didn't take a buck-seventy I.Q. to realize life would be easier if I let her do the heavy lifting.
I'll take the same approach here and let David Gaffen walk us through the mark-to-market decision. To head off any charges of modesty, I will point out that ewe posted "Banks to Write-UP Assets?" on March 25, giving our readers some lead time:
Following my mission critical (coffee a.m., lights p.m.) duties in importance is attempting to ascertain (sometimes feebly) regulatory impacts and how to make a buck off them. Here's one worth looking at, from the National Center for Policy Analysis...
From MarketBeat, four posts in the last 20 hours:

April 1, 1:46 pm
Are Mark-to-Market and PPIF at Odds?

It’s expected tomorrow that the Federal Accounting Standards Board will vote to officially relax the mark-to-market accounting rule that requires banks to write down the value of assets to observable market levels. But this would seem, in some way, to obviate the purpose of the Treasury Department’s public-private investment fund designed to buy up the very assets in question off banks’ balance sheets.

As Heidi Moore, Deal Journal warrior goddess, relates in today’s Wall Street Journal, the changes are being made to assist U.S. banks, which have complained loudly that current rules force them to undervalue their assets – and that has led to a subsequent crisis of confidence in the banks among investors.

Putting aside for the moment whether the removal makes sense or not – and there are supporters on both sides – if the banks are suddenly allowed to mark their assets to levels that they deem sufficient if they plan on holding said assets to maturity, then what is the point of the program to buy up those assets?>>>MORE

April 1, 2:45 pm

Selling the News on Accounting Changes

Will Thursday’s expected ruling on mark-to-market accounting rules be a ‘sell the news’ moment for the banking stocks?

Shares of the nation’s largest banks boomed in March, putting together a sharp rally after dealing with months of losses. Investors reduced holdings in banking shares in recent months in response to painful write-downs of billions of dollars in assets, and the stocks remained buried amid uncertainty over the government’s plan to resolve the ongoing financial crisis.

The stocks kicked off a recovery in early March, after Citigroup CEO Vikram Pandit said that Citi had been profitable in the first two months of the year, a sentiment echoed by a number of other banking executives. In the meantime, the Financial Accounting Standards Board moved to relax certain rules that stipulate that banks have to mark down assets held to observable market levels. The official vote to change the rule takes place tomorrow, and some investors have argued that it could be a catalyst for banks to bounce even higher....MORE

April 2, 9:45 am

Marking the Market Rally

The Financial Accounting Standards Board, taking its cue from the Kinks, are giving the people what they want, and it’s going to result in a buying burst in the early going, particularly for the banking stocks.

FASB is expected to vote voted to officially adopt new guidelines under the so-called mark-to-market accounting rules, those that required companies to value assets at prices reflecting current market conditions. There are many who believe this change is alchemic, and will allow the financial institutions in question to mask the true value of assets they hold on their balance sheets, but some argue that this will shore up capital ratios and remove an unnecessary handicap that the banks have had to contend with for months....MORE

April 2, 9:54 am

FASB: We Haven’t Voted Yet!

Michael Rapoport reports:
The Financial Accounting Standards Board is meeting Thursday morning on proposed moves to soften controversial “mark-to-market” accounting rules, but the board hasn’t yet voted on the measures - contrary to some reports....MORE

I've got a feeling he's not done yet. And I have time to check my spelling.

Ah, missed one, must be thinking of sheep.