FASB 159: Wall Streets New Math & Chicanery
The Nattering One muses... more out and out fraud, telling investors that -2 + -2 = 4.
Leave it to the Wall Street con artists and slime bags to figure out a way to book losses on liabilities, as a profit.
In addition, thinning or non existent equity is being overstated as a result of these illusory gains. Caveat Emptor.
Merrill Lynch & Co., Citigroup and four other U.S. financial companies have used FASB 159 to book almost $12 billion of revenue after a decline in prices of their own bonds.
The rule, intended to expand the "mark-to- market" accounting that banks use to record profits or losses on trading assets,
allows them to report gains when market prices for their liabilities fall. The new math, while legal, defies common sense.
Merrill, the third-biggest U.S. securities firm, added $4 billion of revenue during the past three quarters as the market value of its debt fell.
Statement 159, formally known as the "Fair Value Option for Financial Assets and Financial Liabilities," was issued in February 2007 by the Financial Accounting Standards Board.
James Cataldo, a former director of treasury risk management for the Federal Home Loan Bank of Boston:
"(Under 159 Wall Street) can post substantial gains as a result of a decline in their own creditworthiness.
It's completely legitimate, but it doesn't make sense by any way we currently have of thinking of net income."
Richard Bove, an analyst at Ladenburg Thalmann: "A company decides to designate $100 million of its subordinated bonds as subject to mark-to-market accounting.
The price of the bonds drops to 80 cents on the dollar from 100 cents. So the firm books $20 million on the "presumed savings that you have on your liabilities."
In the real world you didn't save a dime. You still owe the $100 million.
It's another one of these accounting rules that basically takes you further and further away from reality.''
Lehman, the fourth-biggest securities firm, has reported $1.9 billion of gains related to a widening of its own bond spreads.
Citigroup, the largest U.S. bank by assets, has booked $1.7 billion; Morgan Stanley $1.7 billion;
JPMorgan Chase & Co., the third-biggest bank, $1.7 billion; and Goldman Sachs $550 million.
Merrill designated about $166 billion of liabilities, or 17% of its total, as fair-value instruments subject to mark- to-market accounting at the end of 2007, and showed $2.1 billion of Q1 "revenue".
In a spreadsheet posted on its Web site, Merrill says that investors who want a "more meaningful period- to-period comparison" should exclude the $2.1 billion of revenue recorded in the first quarter.
Hattip To Bloomberg.
Leave it to the Wall Street con artists and slime bags to figure out a way to book losses on liabilities, as a profit.
In addition, thinning or non existent equity is being overstated as a result of these illusory gains. Caveat Emptor.
Merrill Lynch & Co., Citigroup and four other U.S. financial companies have used FASB 159 to book almost $12 billion of revenue after a decline in prices of their own bonds.
The rule, intended to expand the "mark-to- market" accounting that banks use to record profits or losses on trading assets,
allows them to report gains when market prices for their liabilities fall. The new math, while legal, defies common sense.
Merrill, the third-biggest U.S. securities firm, added $4 billion of revenue during the past three quarters as the market value of its debt fell.
Statement 159, formally known as the "Fair Value Option for Financial Assets and Financial Liabilities," was issued in February 2007 by the Financial Accounting Standards Board.
James Cataldo, a former director of treasury risk management for the Federal Home Loan Bank of Boston:
"(Under 159 Wall Street) can post substantial gains as a result of a decline in their own creditworthiness.
It's completely legitimate, but it doesn't make sense by any way we currently have of thinking of net income."
Richard Bove, an analyst at Ladenburg Thalmann: "A company decides to designate $100 million of its subordinated bonds as subject to mark-to-market accounting.
The price of the bonds drops to 80 cents on the dollar from 100 cents. So the firm books $20 million on the "presumed savings that you have on your liabilities."
In the real world you didn't save a dime. You still owe the $100 million.
It's another one of these accounting rules that basically takes you further and further away from reality.''
Lehman, the fourth-biggest securities firm, has reported $1.9 billion of gains related to a widening of its own bond spreads.
Citigroup, the largest U.S. bank by assets, has booked $1.7 billion; Morgan Stanley $1.7 billion;
JPMorgan Chase & Co., the third-biggest bank, $1.7 billion; and Goldman Sachs $550 million.
Merrill designated about $166 billion of liabilities, or 17% of its total, as fair-value instruments subject to mark- to-market accounting at the end of 2007, and showed $2.1 billion of Q1 "revenue".
In a spreadsheet posted on its Web site, Merrill says that investors who want a "more meaningful period- to-period comparison" should exclude the $2.1 billion of revenue recorded in the first quarter.
Hattip To Bloomberg.
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