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| Tuesday, February 9, 2010 |
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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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December 23, 2008 1:39 PM ET
The Financial Accounting Standards Board has proposed a change in its rules that may help financial institutions limit their losses on mortgage-backed and other asset-backed investments. The change may help the stock prices of banks and insurers, though it may not necessarily eliminate their need to raise more capital. In response to criticism of Financial Accounting Standard 157, which describes how such instruments must be accounted for at fair value, the FASB has proposed that preparers of financial statements can take into account expected cash flows when testing such securities for impairment whether they are classified as available for sale or as held to maturity. Until now, securitized financial instruments could not be valued that way, leaving many banks and others saddled with troubled mortgage assets to rely on prices that they contended were artificially low because of illiquid market conditions. Under the new proposal, the assets trading at low prices need not be treated as permanently impaired, meaning the losses on them can be included in comprehensive income rather than earnings. While the result would affect banks’ and insurers’ balance sheets, and so may still influence the amount of capital that regulators require them to hold, it would have no impact on reported earnings, which may help their stock prices. The proposal, known as FASB Staff Position EITF 99-20-a, is one of a number of changes that the FASB is considering that could ease the reporting burden for financial institutions. “Regaining investor confidence during this global credit crisis requires both immediate action and a plan for long-term improvement in the accounting for financial instruments,” said FASB Chairman Robert Herz in a press release announcing the change that was posted to the board’s website last Friday. “By issuing these proposed [staff positions], the FASB is taking immediate steps to reduce complexity and make the accounting for these instruments easier to understand.” Observers said the first proposal represented a significant departure from existing rules, and that others to follow could be similar in import. “They’re trying to introduce a little realism” into fair value accounting, said Robert Willens, a tax and accounting expert in New York City. “This may be the first break in the dam.” Critics complained that FASB gave in to pressure from the Securities and Exchange Commission to back off of its commitment to fair value, which they contend is the most accurate measure of corporate performance but which the banking lobby has vociferously opposed. "The board was under tremendous political pressure to make this modification," noted Pat Finnegan, director of financial reporting policy for the CFA Institute's Centre for Financial Market Integrity. Mr. Finnegan noted that while the proposed change in impairment testing would not affect banks' balance sheets, changes to net income are included in "tier one" capital, so the new rule might influence regulators' views of what they considered adequate.
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