AFP Blogs

The IASB is currently seeking input from users of financial statements in the form of a questionnaire on the proposals regarding its November 2009 exposure draft on impairment of financial assets measured at amortised cost. 

Two versions of the questionnaire are available for completion: an abridged version and a comprehensive version. The abridged version has 15 questions and is in an easy-to-use survey format. The comprehensive version contains detailed examples and asks for comprehensive responses about the proposal. Respondents are asked to complete the version that is most appropriate for their level of technical expertise and understanding of the topic.

The feedback will assist the Board in its deliberations by helping it to better understand the views and preferences of users of the financial statements. This questionnaire, targeted at investors and analysts, forms part of a comprehensive program of outreach activities to all IFRS constituents. The IASB also encourages all users of financial statements to submit a public comment letter to the exposure draft by 30 June 2010. AFP members interested in providing feedback should click here  for more information.

The International Accounting Standards Board (IASB) published for public comment an exposure draft of proposed amendments to IAS 19 Employee Benefits. The proposals would amend the accounting for defined benefit plans through which some employers provide long-term employee benefits, such as pensions and post-employment medical care. In defined benefit plans, employers bear the risk of increases in costs and of possible poor investment performance.

The amendments would address deficiencies in IAS 19 by requiring entities:

• - to account immediately for all estimated changes in the cost of providing these benefits and all changes in the value of plan assets (often referred to as removal of the ‘corridor’ method);
• - to use a new presentation approach that would clearly distinguish between different components of the cost of these benefits; and
•  -to disclose clearer information about the risks arising from defined benefit plans. (more…)

There has been industry disparity on how to account for modified loans in a pool that might meet the definition of a troubled debt restructuring – Should the loan be removed from the pool and be individually assessed on a go forward basis; Should the modified loan remain in the pool and be reevaluated as part of the pool to determine whether the impact of the modification significantly alters the projected cash flows of the pool.  AFP members that as a part of their business activities extend loans or credit to customers for their purchases would be affected by this clarifying guidance. 

FASB ruled that modifications of loans that are accounted for within a pool under Accounting Codification Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change.

The Securities and Exchange Commission (“SEC”) published an interpretive release to public companies regarding the existing disclosure requirements as they apply to climate change matters. This guidance is intended to assist companies in satisfying their disclosure obligations under the federal securities laws and regulations. 

Although much of the reporting on climate change is provided voluntarily, the SEC believes registrants should be aware that some of the information reported may be required to be disclosed in filings pursuant to existing disclosure requirements (e.g. under Reg S-K, Reg S-X, legal proceedings, risk factors, business description, or MD&A).

AFP members now can access information on current conditions in the corporate loan markets for investment grade and leveraged borrowers.

AFP has partnered with Thomson Reuters LPC to offer AFP Loan Market Data for finance professionals who need to negotiate corporate loans. AFP Loan Market Data provides benchmark pricing for recent investment grade and non-investment grade borrowers. Information includes average loan pricing, tenor, and size for a range of credit ratings, as well as information on the variation in pricing.

“The old adage goes, ‘Banks want to lend when you don’t need to borrow,’” says Brian Kalish, AFP’s Finance Practice Lead. “Since 2007 and the financial crisis, access to credit has been severely restricted. The covenants, reps and warrants required for even a 364-day facility have been the tightest in the past 20 years.

“AFP, together with Thomson Reuters, aims to provide members with the best information available to help them make the best borrowing decisions possible. This latest member benefit will provide members the ability to track developments in the loan market.”

See AFP Loan Market Data: www.afponline.org/loandata.

The twin headlines for the week involve, not surprisingly, Greece and Financial Regulatory reform. Greece continues to teeter at the edge of the abyss, and it looks like there is a high likelihood that some form of financial regulatory reform will move forward in the US, in the weeks ahead.

It was another busy week of Greece watching. This week we watched as credit default swaps on Greek debt widened to record levels. Moody’s downgraded the sovereign credit rating of Greece. The budget deficit for Greece was revised to a larger 13.6% of GDP. The yield on 2-year Greek government securities blew through a yield of 11 percent.

(more…)

Order me a spanakopita and call me done. I shall again start off this week’s review with an update on the Greek situation. Over the past weekend, the EU and the IMF provided additional insight and details as to the shape and size of the support package for Greece, should the need arise. The response of the market was very positive at the open on Monday, and Greek credit spreads tightened substantially. Unfortunately, as the week progressed, it became more and more apparent that the possibility that the Greek government would actually have to utilize the support package was increasing and investors shied away from Greek bonds. The credit spreads on Greek bonds returned to levels similar to before the recent support package details were announced. The credit spreads of the other PIGS (Portugal, Ireland, Italy, Greece and Spain) widened out in sympathy.

On a slightly brighter topic, M&A activity seems to be picking up: Mirant to merge with RRI Energy; Apache to buy Mariner Energy; talks of United and US Air combining; and Cerberus Capital’s leveraged buyout of DynCorp International. The large amounts of cash sitting on the balance sheet of organizations added to the more positive outlook for both the domestic and global economies, and are encouraging organizations to look for opportunities to grow. At the same time, investors are showing an increased willingness to take on more risky assets than we have witnessed since the beginning of the financial crisis.

Treasuries gained on the week. With no earth-shattering news this week, we moved around rather range bound. For the US Treasury 10-year note, we seem to be in a 3.70% – 4.00% world of late.

Corporate debt issuance continues to grow, even as corporate credit spreads are the tightest since November 2007, and the absolute levels are at the lowest levels since October 2005.

Financial Regulatory Reform jumped back in the headlines this week as rumors emerged as to what the Senate Agriculture Committee’s reform bill might contain. Over the past several weeks, the odds makers have been increasing the chances of a reform bill being created and signed by the President before this year’s mid-term elections. The largest bombshell of the week was the prospect of commercial banks having to divorce themselves from being derivative traders. With the five largest derivatives players having about 90 percent of market, there would be a substantial impact on those firms and the markets, if this rule where to be incorporated into law.

South Korea received an unexpected credit upgrade this week. Moody’s moved South Korea to A1 from A2. The upgrade was a function of the increased positive activity of the South Korean economy as well as the low unemployment rate that the country enjoys.

Back here in the US, we suffered our 50^th bank failure. If the pace of bank failures continues on its current trajectory, we will experience our greatest number of bank failures since the peak of the S&L crisis back in 1989.

The Securities and Exchange Commission charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

Sen. Charles Schumer (D-N.Y.), Securities and Exchange Commission Chairman Mary Schapiro, and five former SEC chairmen urged the Senate to pass legislation that allows the SEC to be self-funded, rather than being dependent on appropriations. Besides Schapiro, Schumer was joined by David Ruder, who led the SEC from 1987 to 1989, Arthur Levitt (1993 to 2001), Harvey Pitt (2001 to 2003), and William Donaldson (2003 to 2005). Richard Breeden, who chaired the agency from 1989 to 1993, was not present at the press conference but submitted a statement in support of self-funding for the SEC.

(more…)

BNA reported that Massachusetts State Treasurer Timothy Cahill said that he intends to withdraw approximately $243 million in state funds from three of the nation’s largest banks because those companies failed to lower credit card interest rates. Cahill’s intends to withdraw $231 million in state funds from Bank of America after the institution declined to cap its interest rates at 18 percent. He also plans to pull $9 million from Citigroup Inc. and $3 million from Wells Fargo. Those funds are from the Massachusetts Municipal Depository Trust, a money market involving pooled investments from local government, the state, and state authorities.

In a statement released by his office, Cahill said he is asking the national banks to voluntarily comply with a state law that sets an 18 percent limit on credit card interest rates for Massachusetts-chartered banks. “We will gladly use the state’s financial leverage to help achieve that goal,” Cahill emphasized.