Chris Lau - Seeking Alpha

Thursday, April 02, 2009

Rules Keep Changing: Mark to Market

... The changes approved today to fair-value, also known as mark-to-market, allow companies to use “significant” judgment in valuing assets to reduce writedowns on certain investments, including mortgage-backed securities. Accounting analysts say the measure, which can be applied to first-quarter results, may boost banks’ net income by 20 percent or more. FASB approved the changes during a meeting in Norwalk, Connecticut.



I have stated frequently that the Government (Congress) keeps changing the rules. This time, the board that governs accounting rules (Financial Accounting Standards Board or FASB) has changed the Mark-to-Market Rules.

It will take effect as early as 2Q/2009, it will give more flexibility on valuations, and it will use cash flows and not distressed markets.

This "solves" the question of "how do you value assets that are unmarketable. This benefits the banking sector.

This now means more work for you and I as an investor. We now need to do even more homework in assessing the health of a bank.

Other Notes:
On a positive note issued an IPO and rose 25%. This illustrates that
1) the market has an appetite for new issues, and the market is depressed partially on the bank lending problems.
2) if the banking system resumed lending, innovative companies in a healthy industry will be able to tap the debt market.

Long GME. Long ATVI.

Long RIMM (No position). Here was my writeup on RIMM before earnings were released, and before RIMM rose +20% in after hours trade.