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American Railcar Industries, Inc. Message Board

  • mtymark2000 mtymark2000 Apr 1, 2009 2:46 PM Flag


    FASB Votes on Mark-to-Market – C, WFC, PNC, USB, BAC 10 minutes ago By: Richard Daverman
    Contributor, Stock Traders Daily

    Stock Traders Daily (La Jolla, CA) On Thursday, April 2, the Financial Accounting Standards Board (FASB) will hold its formal vote on whether to allow banks to value the toxic assets in their portfolios using “significant judgment” rather than the mark-to-market basis that has been the rule. Under the new rules, banks would be left free to determine their own value for securities, usually mortgage bonds, if illiquid markets fail to establish a realistic price for them. At the moment, banks think their assets are worth more than the market does.
    The change would have a very beneficial effect on banks’ earnings reports, especially the money center banks that have been the epicenter of financial meltdown. In a Bloomberg article, it was estimated that money center banks would see their earnings rise by 20% with help of the accounting change.
    Because banks would be able to “chose” the value of their assets, this move may seem like the wrong direction for regulation – away from transparency toward the never-never land of a reality banks would prefer, rather than the one that is.
    But Congress is for it, pressured by the lobbyists from the money center banks, and even Warren Buffett (who owns some big money center bank positions) supports the idea. Buffett, however, is in favor of the idea only for purposes of establishing the amount of regulatory capital. If banks could inflate the value of their regulatory capital, he reasons, they could lend more. This means they would make more money and work their way out of their present dire financial condition. Buffett thinks Citicorp (NYSE: C) may be too sick to recover with this simple accounting trick, but the others could recover their financial health, in his opinion.
    Critics counter by saying the change will just put off the day of reckoning, hiding problems and letting them become worse, as happened in the late 1980’s with the Savings & Loan crisis.
    The change will also have a negative effect on the Treasury Department’s recently announced toxic assets buy-in program. Price was always a potential problem with the as-yet unimplemented program, because venture capitalists (supported by the government) will want to buy the assets cheaply, while banks need to sell at a high price to protect themselves from bankruptcy. If the assets can be held on their books without writing them down to their depressed price, banks have less incentive to sell.
    Because the rule change is expected to become the new standard, the upside move after a change will probably be less dramatic than the downside move if FASB disappoints bank investors by maintaining the status quo.
    The banks with the biggest exposure to mortgage backed securities, besides Citicorp, are Wells Fargo (NYSE: WFC), PNC Financial Services Group (NYSE: PNC), US Bancorp (NYSE: USB) and Bank of America (NYSE: BAC). All banks and financial sector stocks will have the potential to be volatile on Thursday. Rating :

41.95+0.82(+1.99%)Feb 12 4:00 PMEST