Accounting standards for U.S. financial institutions were eased on Thursday when
the U.S. Financial Accounting Standards Board recommended allowing firms to use
"significant' judgment when valuing toxic assets on their books.
Analysts
interviewed by Bloomberg said the move could increase net income for financial
institutions by as much as 20%, by significantly easing the hit that financial
institutions have had to take on so-called toxic debt on their balance
sheets.
"Cynics will claim this is a thinly veiled attempt to disguise
the seriousness of the financial crisis and losses being faced," said Marc
Chandler at Brown Brothers Harriman. "On the other hand, there are many who see
the mark-to-market as an unreasonable demand for financial instruments with no
markets."
Indeed, over the last several quarters, market participants
have argued that interest in toxic assets, such as mortgage-backed securities,
has essentially dried up, meaning that firms have had to value some assets as
worthless even though they could eventually regain their worth.
The
decision also comes ahead of earnings season, with the first quarter of 2009
having ended last week, and with Alcoa expected to release their report on
Tuesday. The FASB also said the decision will be retroactive, allowing firms to
take less writedowns.
Furthermore, analysts have argued that the decision
will reduce the effectiveness of the U.S. Treasury's Public Private Partnership
Investment Program, whereby the government will back the purchase of toxic
assets.