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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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July 9, 2008 4:12 PM ET
A Financial Accounting Standards Board member encouraged the rule-setting body to consider modifying a new standard aimed at getting financial companies to value assets at market prices in light of investor concerns that firms aren’t disclosing enough about their complex securities. FASB member Thomas Linsmeier today urged two investor participants to convey their criticism of corporate disclosure to the accounting group’s staff at a Securities and Exchange Commission conference held in Washington. The investor concerns relate to how the so-called fair-value rule, or FAS 157, has been implemented since it went into effect last November when the collapse of mortgage-backed bonds caused firms like Citigroup and Merrill Lynch to take massive write-downs. “We really do need to do a post-mortem by looking at annual disclosures during the rule’s baptism by fire,” Mr. Linsmeier, one of five members of the FASB board, said in an interview after the SEC conference. “If there’s a problem, is it with how we wrote the rule or how it’s applied?” Mr. Linsmeier, a former Michigan State University accounting professor, said he didn’t have an opinion but respected the observations made by Kurt Schacht, a CFA Institute managing director, and Jane Adams, a managing director of the Maverick Capital hedge fund. He urged their criticisms be sent to FASB’s Valuation Resource Group, which looks into rule implementation. Mr. Schacht said he intended to forward them to the group. Ms. Adams could not be reached for comment. “Mr. Linsmeier gave good advice,” FASB spokesman Neal McGarity said. “We’re always interested in considering feedback.” The fair-value rule requires that certain assets of financial companies be marked to market, or valued at a price they could attract in the open market. The rule has drawn fire from some securities firms and banks who contend that prices are nearly impossible to estimate for some structured securities that have no market. They have also argued that the rule has led to an overstatement of problems at investment banks. Mr. Schacht disputed these arguments while saying that the rule as implemented does not go far enough in requiring disclosure. Lack of information is “a serious weakness in fair-value accountings,” said Mr. Schacht, whose organization represents portfolio managers and analysts for brokerages and institutional investors such as mutual and pension funds. He said disclosure was a problem particularly with complex securities priced by broker-dealers, such as asset-backed securities that have a trading market and history. These so-called level two assets, including some securities backed by automobile and student loans, make up 72% of the assets and liabilities at financial institutions in the U.S., and 67% of those in Europe, according to a Fitch Ratings report cited by Mr. Schacht. Financial institutions need to disclose more about how they determine the value of these securities and what management does to confirm these values, Mr. Schacht said. He said the problem was not with the FASB rule but with how it’s implemented. Ms. Adams, a former SEC deputy chief accountant and a FASB project manager, echoed these concerns. SEC Chairman Christopher Cox said today he convened the roundtable “to facilitate an open dialogue” on the question “How well are investors being served?” Most participants, including Goldman Sachs Group managing director Matthew Schroeder, expressed support for the rule, saying it helped both investors and management correctly price firms’ assets. One dissident was James Tisch, chief executive officer of insurance and hotel holding company Loews Corp., who said investors often want financial statements to have a level of precision that is “totally unrealistic” for complex securities. “Often market price is marked to fantasy,” Mr. Tisch said.
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