Accounting Board Criticises European Banks On Greek Debt

Need to have booked larger losses on their Greek government bond holdings in recent outcomes announcements, the International Accounting Standards Board said in a letter to market place regulators.

The criticism comes as Europe's lenders face calls to shore up their balance sheets and restore confidence to investors unnerved by the euro zone debt crisis, funding market place jitters plus a slowing economy.

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In a letter addressed to the European Securities and Markets Authority, the I.A.S.B. - which aims to become the global benchmark for financial reporting - criticized inconsistencies within the way banks and insurers wrote down the value of their Greek sovereign debt in second-quarter earnings.

It stated "some companies" were not employing market place rates to calculate the fair worth of their Greek bond holdings, relying rather on internal models. Whilst some claimed this was mainly because the industry for Greek debt had develop into illiquid, the I.A.S.B. disagreed.

"Although the level of trading activity in Greek government bonds has decreased, transactions are still taking spot," the board chairman Hans Hoogervorst wrote.

The E.S.M.A. was not right away out there for comment.

The letter, which was posted on the I.A.S.B.'s web site Tuesday soon after getting leaked towards the press, didn't single out particular countries or banks.

European banks taking a ?3 billion, or $4.2 billion, hit on their Greek bond holdings earlier this month employed markedly distinct approaches to valuing the debt.

The writedowns disclosed in their quarterly results varied from 21 to 50 percent, showing a wide range of views on what they anticipate to get back from their holdings.

A 21 percent hit refers to the "haircut" on banking sector involvement in a planned second bailout of Greece now being finalized. A 50 percent loss represented the discount markets had been expecting at the end of June, the cut-off period for second-quarter results.

Two French financial organizations, the bank BNP Paribas and insurer CNP Assurances, on Tuesday defended their decision to utilize their own valuation models as opposed to industry prices.

"BNP took provisions against its Greece exposure in full agreement with its auditors and also the relevant authorities, in accordance using the plan decided upon by the European Union on July 21," a bank spokeswoman said.

A CNP spokeswoman stated the group's Greek debt provisions had been calculated in accordance using the E.U. plan and in agreement with its auditors.

Some investors see the problem as severe, having said that, even if the STOXX Europe 600 bank index was trading greater on Tuesday.

"The Greek debt concern has been treated pretty lightly," said Jacques Chahine, head of Luxembourg-based J. Chahine Capital, which manages ?320 billion in assets. "And it's not just Greek debt - all of it requirements to be written down, Spain, Italy."

The E.S.M.A. was unable to impose an uniform Greek "haircut" across the E.U. and its guidance published at the end of July just stressed the require for banks to tell investors clearly how they reflect Greek debt values.

The I.A.S.B. also has no powers of enforcement in how banks book impairments but is keen to show the United States, which decides this year regardless of whether to adopt I.A.S.B. standards, that its rules are consistent and effectively represent what's happening in markets.

Auditors warned in the time against a patchwork approach that will confuse investors and concerns more than Greek haircut reporting will fuel calls for a pan-Europe auditor regulator.

"The impact is extra most likely to be to further lower investors' confidence in shopping for bank debt, rather than sovereign debt," stated Tamara Burnell, head of financial institutions/sovereign investigation at M&G.

Working with the most aggressive markdown approach - namely marking to marketplace all Greek sovereign holdings - would saddle 19 of the most exposed European banks with another ?6.6 billion in potential writedowns, according to Citi analysts.

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BNP would take the biggest hit with ?2.1 billion in remaining writedowns, followed by Dexia in Belgium with ?1.9 billion and Commerzbank in Germany with ?959 million, Citi said.

The European Commission stated on Monday that there was no will need to recapitalize the banks more than and above what had been agreed just after a recent annual stress test .