Some European financial institutions should have taken bigger losses on their Greek government bond holdings in recent results announcements, according to the body that sets their accounting rules, the FT says. In a private letter sent to the European Securities and Markets Authority, the European Union’s market regulator, the International Accounting Standards Board criticised the inconsistent way in which banks and insurers have been writing down the value of their Greek sovereign debt. Separately, the FT also reports that on Monday two top European officials went before parliament to defend the region’s banks.
Ce contexte spécifique et la liquidité très faible du marché de la dette grecque a conduit le groupe Crédit Agricole S.A. à valoriser, au 30 juin 2011, ces instruments en « mark to model » et à les classer en niveau 3, à l’exception des titres du portefeuille de négociation restés en « mark to market » niveau 1 compte-tenu de leur nature et de leur maturité (inférieure à 6 mois)…
Sorry — the consolidated financial statements to Credit Agricole’s latest results were only published in French on Thursday. Though you’ve no doubt got the gist of “mark to model”. That and Level 3, which is the place where banks can reclassify assets and price them purely through modelling, when market prices (“Level 1″) are too infrequent or illiquid to be observed. There’s also a halfway house, Level 2. Read more
Another way to swap them too?
Interesting fact: Commerzbank’s Greek bond exposure is almost all positioned in maturities after 10 years. Ostensibly, the current IIF financing offer for Greece targets bonds maturing before 2020. No later. Read more
There are two fun things about BNP Paribas’ €534m Greek bond impairment (sat right at the top of its second-quarter results press release…)
Much like the rating agencies, many auditors have suffered a crisis of creditability in recent years.
That will make their reaction to the IIF’s proposed financing offer for Greece all the more interesting. Read more
The SEC has asked Groupon to answer questions about its use of an unusual accounting metric in financial information provided under its IPO filing, the WSJ reports. Investors have argued that the ‘adjusted consolidated segment operating income’ framework under-rates the company’s marketing costs. Groupon earned $60.6m in operating income for 2010 on the adjusted CSOI basis, and lost $413.4m on a GAAP basis according to its S-1 filing, FT Alphaville reported at the time. The SEC is also looking at Groupon’s accounting of gross profits, with the probe prolonging the company’s pre-IPO review, says CNBC.
Hey European banks! Have you seen this?
[International Accounting Standards IAS39 - Paragraph 59] A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. It may not be possible to identify a single, discrete event that caused the impairment. Rather the combined effect of several events may have caused the impairment … [these events can include] a) significant financial difficulty of the issuer or obligor; … Read more
We know that private placements have become a popular method of European bank funding recently.
Though smaller, the deals do allow issuers access to cheaper, more flexible funding — or even money that might not otherwise have been available to them given recent eurozone sentiment. Plus the banks don’t have to worry about providing, for example, billions worth of collateral upfront in a benchmark covered bond issue that would have been closely scrutinised by the market. Read more
Because some day you might want a detailed breakdown of how Europe’s banks are accounting for their Greek, Spanish — and even Italian — bonds, here’s a helpful table from Deutsche Bank.
It comes from Mohit Kumar and Abhishek Singhania, who’ve crunched the stress test data: Read more
We’re getting the results of the European bank stress tests later (at 1700 London time) and while we’ll discover who has failed, or nearly failed, the raw data on sovereign exposures, as Jonathan Weil notes, should prove far more useful in the coming days.
Although, FT Alphaville has already seen enough to indulge in a favoured game. That of pointing out just how quickly reality tends to outpace the “adverse” sovereign scenarios employed. Read more
A sudden regulatory and accounting push on banks’ “extend and pretend” practices means we’re about to get a peek at one form of renegotiated loans come the third-quarter — so-called Troubled Debt Restructurings.
The Securities and Exchange Commission has been on the case of restructured bank loans since March this year, when it fired off a letter asking financials to clarify their loan modifications. As a reminder, loan mods can change the terms of a loan for a borrower, giving them another chance to make good on the debt, but modified loans do have an unnerving tendency to redefault. In April, the US accounting board announced they’d be firming up rules on how banks account for and report Troubled Debt Restructurings (TDRs). The new guidance is expected to increase the amount of loans reported as TDRs on banks’ balance sheets once it comes into effect this Autumn. Read more
Here’s PricewaterhouseCoopers’ (theoretical) non-performing loan (NPL) barometer:
China’s B shares index, which contains 53 Chinese companies that foreigners are allowed to own, has finally succumbed to those fraud and accounting scandals, losing 12.8 per cent last week alone. Read more
The board of Regions Financial is investigating whether executives delayed public disclosure of loans that were going sour during the financial crisis, the WSJ reports, citing to court documents and people familiar with the matter. The audit committee of the nation’s 12th-largest U.S. bank by assets—and the only one of its size still supported by crisis-era government aid—began its probe after the Federal Reserve expressed concerns about past practices, these people said. The board review comes as regulators step up scrutiny of methods banks use to classify loans, which can make banks appear healthier than they are. Investigators are looking at so-called extend-and-pretend cases—where a bank gives a borrower more time and delays reclassifying a souring loan—as well as at “troubled-debt restructurings.”
AIG is back on Wall Street.
Fresh from failing to acquire its own portfolio of dodgy deals from the Federal Reserve — AIG’s Mortgage-Backed Securities (MBS) were acquired by the US central bank during the crisis and transformed into Maiden Lane II — the bailed-out insurer has a new strategy to lure investors to its stock after last month’s ‘re-IPO.’ Read more
Risk-weightings for bank assets are still relatively new things.
Codified in the Basel II rules first published in 2004, they were meant to shift financials away from set levels of required capital, tailoring them to the perceived amount of risky assets held by banks. Read more
You gotta love new accounting principles — especially ones drummed up by IPO-ing tech firms.
From Groupon’s S-1 filing: Read more
Gotta love this straight-shooting piece of research from Alliance Bernstein.
The word “re-profiling” comes straight from “Newspeak“, the communication model employed by the Ministry of Truth in Orwell’s 1984. The one thing that is clear about re-profiling is that it does not include haircuts to the principal of the debt, but alterations to the maturity and potentially also to the coupon of the bonds. Read more
In March, the US Securities and Exchange Commission fired off a few letters asking a number of America’s regional banks to clarify their loan modification practices. In particular the SEC is reportedly looking into “troubled debt restructurings” (TDRs) which involve modifying existing loans’ terms.
Just to be clear, this particular form of ‘extend and pretend‘ is 100 per cent legal, though it’s governed by some fairly nebulous accounting rules and is meant to be reported. First though, look at those TDR growth rates. In a special report out on Thursday, Fitch Ratings says reported TDRs increased 48 per cent to $106bn in 2010. The mix, however, is the really interesting (and significant) thing. Read more
“We previously expressed the view that, ‘unless the government concerned was prepared to suffer significant economic costs (and in effect, restore bond holders to the position they were in before credit concerns arose) there is no way for holders to avoid having to book losses in their financial statements’.”
Scratch that! Read more
Cut, paste and mail to your favourite holder of Hellenic debt:
Basel III. Accounting. Mortgage-Backed Securities. Yawn.
But wait — Basel III’s attempt to incentivise banks into managing their interest rate risk could be about to permanently alter the way banks handle some $1,480bn worth of MBS, or 11 per cent of their assets. Read more
For no reason other than to have it out in the open somewhere -presenting the financial filings of C12 Capital Management LLP:
It’s controlled by C12 Capital Management Holding Ltd – as in the guardians of Protium, the infamous Barclays toxic asset portfolio which is now being wound up – and it’s a nice breadcrumb on the trail leading to Michael Keeley, the former BarCap executive who managed Protium assets. Read more
Eighteen months, $6.39bn of toxic assets, a $12bn loan and a pandaemonium of accounting shenanigans later…
…We’ll ask again, what exactly was the point? Read more
Citi doing weird accounting manoeuvres? Perish the thought!
From the bank’s first-quarter results press release: Read more
Behold a central pricing solution for illiquid assets… stuff like TruPS CDOs or, err, Irish bank loans.
In case you forgot that other crisis…
The European Banking Authority has just published parameters for the upcoming European bank stress tests. A first glance has them about as meek as expected. Read more
Protium (Pantoprazole) is used to treat or prevent indigestion — A feeling of discomfort or pain within the lower chest or abdomen caused by gastric acid irritation within the upper part of the gut namely the oesophagus, stomach or duodenum. For other causes of abdominal pain see indigestion.
Protium (Protium Finance LP) is used to cure mark-to-market accounting — A feeling of discomfort or pain within the balance sheet caused by the residual exposure to toxic assets or monolines. For other causes of toxic asset pain see indigestion of Protium. Read more
Federal investigators have conceded that Lehman Brothers executives won’t likely face charges for an accounting tactic that obscured the Wall Street firm’s true financial condition, the Wall Street Journal reports. However Lehman’s auditor, Ernst & Young, has already been hauled into court. The company is fighting fraud charges filed in December by the New York attorney general for, among other things, allegedly failing to adequately follow up on a whistleblower’s claim that Lehman was misstating the value and size of its assets.
A new line on Lloyds just-released banking results: