INSTANT VIEW: U.S. eases mark-to-market accounting

Thu Apr 2, 2009 11:54am EDT

WASHINGTON (Reuters) - The U.S. Financial Accounting Standards Board on Thursday agreed to give banks more flexibility in applying mark-to-market accounting to their toxic assets.

The action by FASB, an independent accounting standards-setter, came after Congressional pressure to help banks that have been forced to record billions of dollars in lower values for distressed assets because of frozen markets.

Investor groups opposed the change, saying it would let big banks conceal the real value of their toxic assets.

KEY POINTS:

* FASB allows banks to apply new mark-to-market guidance in the first quarter of 2009.

* FASB says the objective of mark-to-market accounting is to set a price that would be received by a bank in an "orderly" transaction in the current, inactive market. It says an "orderly" transaction for accounting purposes does not include the forced liquidation or a distressed sale of an asset.

* FASB agrees to drop the presumption in mark-to-market accounting that all transactions in an inactive market are distressed unless proven otherwise.

* FASB clarifies when banks are required to take write downs on impaired assets, letting them record smaller losses on their income statements.

COMMENTS:

ANDY ENGEL, CO-MANAGER OF CORE INVESTMENT FUND, LEUTHOLD GROUP IN MINNEAPOLIS

"I think it's something that on a near term basis is obviously positive for the stock market -- being able to allow these financials to put what maybe a more realistic price on their assets is a good thing

"Long term there maybe some problems with that. It's a good thing to be able to value some of these things at a realistic price. Right now you're looking ahead and saying their depressed. If you continue to allow people to project what they think these might be worth in the future I think it could lead to some problems.

"Near term its a good adjustment I think I'd like to see them at the end of this crisis going back to instituting that again. You'd get to the point where you have people inflating asset values beyond what they are actual worth

RALPH COLE, PORTFOLIO MANAGER AT FERGUSON WELLMAN CAPITAL MANAGEMENT, IN PORTLAND, ORE:

"Whoever voted against this is probably thinking we don't want to give too much leeway to management teams, that we want to be as conservative as possible in pricing these assets, and darn it we need to get on with this."

"It will lengthen this process that has already felt like forever. It allows people to play a lot more games and maybe not recognize what they need to recognize as quickly. So that's definitely a downside to it."

"Now you're going to leave pricing back in the hands of management teams that may not have done a great job over this cycle, and you're going to have to trust them that they really are marking these things to a model and a price that is reasonable. It takes us back to the same thing: We're probably going to give more leeway to the management teams that you trust ... than those you don't."

"It will be interesting how quickly it can be implemented in this quarter's earnings, and does it change the market's opinion of the stocks just because they write up some assets."

JOSEPH BATTIPAGLIA, MARKET STRATEGIST, STIFEL NICOLAUS, YARDLEY, PENNSYLVANIA

"The mark-to-market rules have been and always will be imperfect. The value of mark-to-market is that it brings some information to the marketplace about what various securities are worth.

"For banks, they already had the most lenient treatment because in effect, mark-to-market was only applied for those assets designated by the banks as being held for sale within a year. So

"I look at the loosening up of mark-to-market -- which was a political effort by Congress against the FASB -- the TALF and the Geithner plan, as all reinforcing the zombie bank concept for America, particularly as it relates to Citicorp and Bank of America, that they will continue to be allowed to exist from a book-keeping point of view, on support from the federal government, for years to come. Which doesn't engender great enthusiasm in my judgment and it certainly sends mixed pricing signals to the marketplace."

ROBERT WILLENS OF ROBERT WILLENS LLC, AN ANALYST WHO SPECIALZIES IN TAX AND ACCOUNTING ISSUES

"This may end up being a dark day in history before it's all said and done. It's a Pyrrhic victory.

"This certainly helps banks cosmetically. It will increase capital levels quite a bit. Yet I'm finding the investors I speak to are mostly disappointed because it doesn't change the reality of the banks.

"Most of these assets are still losing value at a rapid clip. The fact that banks will not have to reflect that loss from an accounting point of view doesn't change the reality."

"More importantly, investors are dismayed that FASB was persuaded to come out with this proposal, that they did it under protest and that FASB doesn't believe in the changes. That this proposal was the result of Congressional threats to its independence."

SCOTT TALBOTT, CHIEF OF GOVERNMENT AFFIARS FOR THE FINANCIAL SERVICES ROUNDTABLE:

"The guidance removes uncertainty of pricing assets in an inactive or illiquid market. The guidance will remove artificially downward pressure on asset value and actually help restore the economy."

EDWARD KETZ, ACCOUNTING PROFESSOR, PENNSYLVANIA STATE UNIVERSITY, STATE COLLEGE, PENNSYLVANIA

"It is a huge mistake by FASB. FASB had had a principled view toward fair value, and has compromised it to allow companies to massage and manipulate balance sheet values."

"The impact will be twofold. In the short-term, there could be higher stock prices, and investors may feel better about banks. Longer-term, it will probably be negative because of the realization that numbers are being manipulated."

"People so much want to get past the recession that they may make the foolish move of interpreting the decision as good news."

TOM SOWANICK, CHIEF INVESTMENT OFFICER AT CLEARBROOK FINANCIAL, WITH $22 BILLION UNDER MANAGEMENT, PRINCETON, NEW JERSEY:

"Today's action by FASB to ease the mark-to-market accounting rule could have a tremendous impact on financial stocks from this point forward. This change can be applied to first-quarter earnings and it is estimated that net income may be increased by as much as 20 percent or more."

STEPHEN MASSOCCA, MANAGING DIRECTOR AT WEDBUSH MORGAN IN SAN FRANCISCO

"It would benefit any bank that is having issues because their stated tangible common equity is creating some problem for them.

"Now, via the waving of the wand, they're going to be able by virtue of a journal entry increase their stated equity.

"I see good from the standpoint that they are able to claim they have greater equity. That helps them be more stable, changes the tone of the conversation.

"It's potentially bad if that now promotes procrastination with regard to cleaning up these 'toxic' assets. If it somehow slows down the process of dealing with that, of disposing of them and moving things forward on that front, then that's a bad thing."

LEE OLVER, FIXED INCOME STRATEGIST, SMH CAPITAL, HOUSTON

"Overall I would think it would help the market in the short run. In the long run, it will cause doubts about the accuracies of financial statements when you don't know what value of the assets in financial institutions. It's a short-term fix that will create long-term problems."

JOSHUA SHAPIRO, CHIEF U.S. ECONOMIST, MFR, INC., NEW YORK

"Our reaction is that this decision decreases transparency and allows financial institutions to use fictional valuations on many of their toxic assets. Whatever "write-ups" result from this are unlikely to be valued very highly by markets, and this decision further obscures the true position of banks and other financial institutions."

"Shenanigans such as this do nothing to resolve the many problems facing the financial system; indeed this decision is more likely to delay necessary reform and restructuring than it is to create a positive outcome."

STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO IN GREENWICH, CONNECTICUT

"This was anticipated, given the politics behind it. It is a sigh of relief since people had been expecting it for the past 2-3 weeks, though again there's some political influence behind it.

"If we look back from the last 30's and into the late 90's I believe there was no such thing as mark-to-market. When you're forcing prices in a market where there's structural imbalances in terms of credit flows, and investors know that, it can lead to a continuous downward cycle.

"If they allow this, it puts pressure on a lot of businesses, including banks. If this was in place in the 90s I think a lot of banks would've imploded. It's quite a restriction.

Realtors® Pledge Assistance for Obama Guidelines on Foreclosure Fixes

WASHINGTON, March 04, 2009
Mary Trupo 202/383-1007 mtrupo@realtors.org

The following is a statement by National Association of Realtors® President Charles McMillan:

“NAR’s 1.2 million members are eager to help make President Obama’s Making Home Affordable plan a reality. We are pleased that the president released the guidelines today for refinancing and mortgage loan modifications and that the guidelines will be implemented immediately to help struggling homeowners as well as millions of eligible homeowners who have stayed current in their mortgage payments.

“Housing stabilization must be the key component of any federal recovery plan. Helping families keep their homes is critical to this effort and for the health of our economy and communities across the country.

“NAR has long called for a multipronged approach to address the housing and economic crisis. Allowing eligible homeowners to refinance or modify their loans will help millions of families avoid foreclosure. This in turn will support the housing recovery by slowing the growth in inventory due to foreclosures. Lowering unsold inventory will help stabilize home prices and values. We believe that the incentives the loan modification plan offers to borrowers and loan servicers will encourage additional loan modifications, reducing the default rate.

“Moving forward, we must not only work to prevent foreclosures, but also bring financially healthy home buyers to the market to further reduce unsold inventory. Toward this end, we hope that the president and his administration will continue to look for new and creative approaches that will lower interest rates for all homeowners and buyers.”

Review the Plan's Guidelines

For more detailed information on the Making Home Affordable plan, visit www.financialstability.gov.

Ocean Tower: Sinking or Settling? KVEO Video

A muliti-million dollar condominium high rise building is settling and sinking on South Padre Island.

Construction is temporarily haulted at Ocean Tower condos, on the north end of South Padre Island and it's one of the tallest buildings in the Valley and this building delay on these 151 high priced, ocean view condos, is raising some concerns.

Construction crews are still on site at the luxurous Ocean Towers condos, but work has come to a hault. Late last week, Cameron county officials say, after inspecting they realized, this 31 story high skyscraper is slowly settling into the sand, more than it should be.

Column cracks in the parking garage structure concern former developers like, Fred Joseph, but real estate agents, who work closely with Ocean Tower developlers say, there isn't much to worry about. What apparently happened is the tower and parking garage were mistakenly built connected and say, tower is not leaning, but the parking garage structure did not settle. The connection of the garage to the tower caused cracks at the junction points because of the unsettling.

Still, residents sasy they hope construction continues, so profits won't be lost. Agents involved with the project tell us, developers hope to resolve the situation and resume construction by Monday. They say sinking is not un-heard of for buildings being built so close to the ocean.

WATCH THE KVEO NEWS VIDEO

NEWS RELEASE

May 23rd, 2008
A recent reversal in mortgage policy means the market is better positioned for a turnaround, according to the National Association of Realtors®. NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said the good news is that mortgage restrictions have just been eased. “In the past week, Freddie Mac and Fannie Mae announced that they were eliminating their ‘declining market’ policies, effective June 1,” he said.

“This means consumers across the country will have access to safe, affordable financing with down payments of only 5 percent on most mortgages, with 100 percent financing available on some loan products, and we could see an upturn in home sales this summer.”

Summer season is underway on Texas' #1 beach destination!

Our real estate market is very active as Buyers recognize the amazing deals to be found. Two of the most recent condos sold went for $132,000 & $140,000. These were 2B/2B condos in different complexes, just across the street from the beach.

$275,000 for a one bedroom beachfront condo, and a 3B/3B, brand new upgraded condo, half a block to the beach for under $250,000! The phrase “kid in a candy store” may just apply to investors as well looking for a great deal on the Island right now!

Our pre-construction development, Solarium & Sky Beach , is proving to be a hit already, due to its unique rooftop amenities & competitive pricing. Those reserving units at Solarium are buyers wanting to plan ahead for their piece of Island paradise, as completion is not until 2010. There are still plenty of available units so call us for a Reservation Agreement.

The good news is not all of the best deals have been snapped up yet, and this month’s Newsletter shows you our top picks for your best investment/vacation home, or an Island Lot close to the beach. These properties have been chosen from the MLS and not just our office listings, so you know you are getting the full spectrum.

So come on down, take a vacation, see for yourself the incredible real estate deals we have here on the Island. Book a condo or beach house rental with our sister company, Latitude 26, and experience first-hand our investment rental program.

Roman & Jane Esparza