The mark-to-market accounting changes being championed on Wall Street are receiving less enthusiasm in
The
Investors heralded the move, and it helped push the Dow Jones Industrial Average past the 8,000 mark for the first time in more than two months.
In essence, the change eliminates the need for banks to write down assets they intend to hold to maturity, which theoretically should stabilize capital reserves.
Local bank leaders view the change as a positive step, but don’t think it will have a significant impact on their balance sheets, largely because impairments, or write-offs, already have been taken.
“We feel the FASB revisions are appropriate, albeit long overdue,” said Ed Zito, an executive vice president for
Zito was referring to illiquid assets that might have long-term value, but can’t be sold today because there are no buyers.
“It’s like a stock with a bad name,” said Doug Hile, president and CEO of
FASB’s new guidelines allow banks and their auditors to use “significant judgment” when valuing illiquid assets.
Alliance Bank parent Western Alliance Bancorp. charged off $75.3 million in the fourth quarter, writing off its collateralized debt obligations. That spurred a net loss of $148.3 million for the quarter and $236.5 million for the year.
“We can’t go back and write them back up,” Zito said.
Now most of the Nevada-based holding company’s CDOs are composed of trusts and preferred stock of other large financial institutions, which stand to benefit more by the FASB change because they hold these toxic assets.
A CDO is an investment-grade security backed by a pool of bonds, loans and other assets. CDOs do not specialize in one type of debt, but often are nonmortgage loans or bonds.
Dennis Jones,
“We have always taken a conservative approach to managing our investment portfolio and, consequently, carry a low level of the hard-to-value securities that are most impacted by this change,” he said.
Hile wonders how auditors will apply the “judgment” criteria.
“Then we’ll find out if this will be effectual or not,” he said. “We’re looking for some more clarification.”
Because most community banks do not buy or sell securities, they have little reason to cheer the rule change. Many community bank executives want bank regulators to take up their concerns — mainly readjusting real estate valuations.
If community banks could incorporate the same mark-to-market changes to loan portfolios and real estate loans, it would stabilize depressing capital levels, said
But community banks are viewed as individual entities. They rarely hold lawmakers’ ears and have little lobbying power in their own states, let alone in
“They just don’t have the voice,” Dunlap said.
Union Bank reported a $4 million loss in 2008, compared with a $1.5 million profit the year before. Last year’s struggles were tied largely to the bank’s high percentage of nonperforming loans.
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Financial Accounting Standards Board: www.fasb.org
Mark-to-Market
The accounting act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value.