Mensajepor valdano » Lun Nov 07, 2011 7:29 pm
Miren esto es increible, tambien en Europa!!!
Perdonen por la extension, slds
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By Michael Aneiro
European debt woes are actually helping European banks, at least in one element of debt-market accounting, which could also be masking the extent of banks’ problems.
In their recent third-quarter earnings reports, several major European banks recognized mark-to-market gains on the declining value of their own debt, an accounting treatment that in most cases significantly improved their results, Moody’s said Monday, calling such maneuvers an “illusory” source of income.
Like companies that repurchase their own stock shares when they deem them undervalued, or are seeking ways to deploy cash, companies sometime repurchase their own debt when it’s trading it below par value. In the U.S., debt forgiven through buybacks is usually taxed as income, although stimulus legislation allowed companies that repurchase debt to delay paying such taxes and then spread out tax payments over several years.
For European banks, reported pre-tax own-debt gains for the third quarter included £3.0 billion for Barclays, £2.4 billion for Royal Bank of Scotland, CHF1.8 billon for Credit Suisse, CHF1.6 billion for UBS and €166 million for Deutsche Bank, Moody’s said, saying the gains contributed to 59% of pre-tax quarterly earnings at Barclays, 118% at RBS, 175% at Credit Suisse, 162% at UBS and 18% at Deutsche Bank. Moody’s says:
Under this accounting election, debt is carried at fair value on the balance sheet, with changes in fair value being reported in income. This practice results in counter-intuitive financial reporting because when a company’s credit standing deteriorates, and therefore the fair value of its debt declines, a gain is reported in income. (There is an opposite effect when a company’s creditworthiness improves: it would report a loss resulting from the increase in the fair value of its debt.)
This reporting anomaly is not a new phenomenon, but becomes more pronounced during periods of extreme volatility in banks’ credit spreads. The spike in credit spreads during the most recent quarter ended 30 September resulted in the significant gains reported by these banks, whereas the gains and losses reported during the first six months of 2011 were of much lower magnitude. A similar trend existed during the first three quarters of 2011 for the major US banks that utilize this accounting option.
These are the types of bond-market gains that banks, and companies, would prefer to do without. Since one of the major determinants in bond and loan prices is default risk, a bank or a company with bonds trading significantly below face value may not be in a liquid enough position to repurchase that debt.
