Banks Get New Leeway In Valuing Their Assets
A once-obscure accounting rule that infuriated banks, who blamed it for worsening the financial crisis, was changed Thursday to give banks more discretion in reporting the value of mortgage securities.
The change seems likely to allow banks to report higher profits by assuming that the securities are worth more than anyone is now willing to pay for them. But critics objected that the change could further damage the credibility of financial institutions by enabling them to avoid recognizing losses from bad loans they have made.
Critics also said that since the rules were changed under heavy political pressure, the move compromised the independence of the organization that did it, the Financial Accounting Standards Board, or FASB.
During the financial crisis, the market prices of many securities, particularly those backed by subprime home mortgages, have plunged to fractions of their original prices. That has forced banks to report hundreds of billions of dollars in losses over the last year, because some of those securities must be reported at market value each three months, with the bank showing a profit or loss based on the change.
A House Divided Passes Budget Without GOP Votes
The House approved a $3.6 trillion federal budget on Thursday with no Republican support, a sign of deep partisan tensions likely to color congressional efforts to enact the major policy initiatives sought by President Barack Obama.
The Senate was moving toward passing a similar $3.5 trillion budget, solely on the strength of Democratic votes as well, after a day’s laboring over amendments that did little to change a fiscal blueprint in keeping with Obama’s ambitious agenda.
Democrats said the two budgets, which will have to be reconciled after a two-week congressional recess, cleared the way for health care, energy and education overhauls pushed by the new president. The Democrats said the budgets reversed what they portrayed as the failed economic approach of the Bush administration and Republican-led Congresses.
Speaker Nancy Pelosi of California said Democrats would like to find consensus with Republicans, but not at the expense of the infusion of federal money that the majority calls crucial in a time of economic distress.
Western Banks Face Big Losses On Chinese Real Estate
Back in the good old days — early 2007 — bankers from Merrill Lynch, Deutsche Bank and other financial giants placed their bets on Xu Jiayin, a real estate tycoon who was supposed to be China’s next billionaire.
They lent his company $400 million, encouraged him to acquire large tracts of land and in early 2008 promoted a proposed $2.1 billion public stock offering by the company, the Evergrande Real Estate Group, in Hong Kong.
One year later, China’s housing market has collapsed, Evergrande is mired in debt and the Wall Street bankers are facing huge losses because the company never sold stock to the public.
Now, analysts say, Evergrande has become a symbol of China’s go-go era of investing, when international bankers, private equity dealmakers and hedge fund managers rushed here hoping to cash in on the world’s biggest building boom.