Looking for the time
April 1, 2009, 2:24 pm
Banks Rally Ahead Of Accounting Rule Change
Posted by Bob O'Brien
Bank shares have paced the market’s advance in Wednesday’s trading, a rally that could have some legs to it in subsequent sessions, presuming the board that sets the rules governing accounting treatments delivers a widely expected change in those rules that benefits most banks.
Shares of Morgan Stanley (MS) added 5% Wednesday, while Goldman Sachs (GS)has gone ahead 4%, Citigroup (C) advanced nearlyl 6%, and Bank of America (BAC) moved 3% higher.
The gains came as the Financial Accounting Standards Board spent the day reviewing the comments it received to its proposed rule change, a change that would allow banks to avoid the requirement to value assets at market value when those assets are being priced by an impaired market.
Analysts have suggested that, if the FASB approved the changes as it’s indicated, bank profits could rise as much as 20% in coming reporting periods, because it would give those banks more leeway to price those assets at what the bank believed them to be worth.
It’s unusual that the accounting board would spend just a single day reviewing the rules changes. Of course, it’s unusual that such a process-heavy body would rush through a major rules change in as little as two weeks. But that’s essentially the mandate that Congress gave the FASB, which it dressed down at a hearing just two weeks ago. Congress indicated that, if the accounting body didn’t change the rules to accommodate the banks, the legislature would find its own remedies.
The rules could be applied to the quarterly results that banks recorded for the period that ended yesterday. Applying rules changes retroactively - another significant departure from the norm for the FASB. These are, indeed, unusual times.
