Comments on: Banks Now Permitted to Count Goodwill as Capital http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill.html Sun, 22 Nov 2009 22:11:10 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Carlomagno http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill.html#comment-15947 Carlomagno Thu, 18 Sep 2008 21:28:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill-as-capital/#comment-15947 @Blissex: that was me, forgot to sign in. I find it absolutely amazing that with such a precedent, any US regulator would even dare to suggest to again include goodwill in regulatory capital. Quite astonishing. @Blissex: that was me, forgot to sign in. I find it absolutely amazing that with such a precedent, any US regulator would even dare to suggest to again include goodwill in regulatory capital. Quite astonishing.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill.html#comment-15934 Anonymous Thu, 18 Sep 2008 18:18:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill-as-capital/#comment-15934 Won't that goodwill evaporate as the dropping value of the assets is realized? Couple of write-downs and it is gone? Won’t that goodwill evaporate as the dropping value of the assets is realized? Couple of write-downs and it is gone?

]]> By: Blissex http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill.html#comment-15931 Blissex Thu, 18 Sep 2008 17:35:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill-as-capital/#comment-15931 <b>http://www.sec.gov/news/speech/1989/062689grundfest.pdf</b><br/><br/>Ha! Many thanks to the anonymous donor of this link, it is just too funny! Or not. http://www.sec.gov/news/speech/1989/062689grundfest.pdf

Ha! Many thanks to the anonymous donor of this link, it is just too funny! Or not.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill.html#comment-15922 Anonymous Thu, 18 Sep 2008 15:52:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill-as-capital/#comment-15922 Bring this man back:<br/><br/>http://www.sec.gov/news/speech/1989/062689grundfest.pdf Bring this man back:

http://www.sec.gov/news/speech/1989/062689grundfest.pdf

]]> By: Blissex http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill.html#comment-15891 Blissex Thu, 18 Sep 2008 09:37:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill-as-capital/#comment-15891 «But is this way of going about it wise?»<br/><br/>Well, it depends on whether the current Republican administration wants to solve the problem or wants a japan-style solution.<br/><br/>The current problem is that there are a lot of pending losses waiting to be realized and made material and counted. At the very least there are 3 million houses overstock whose mortgages are to be written down. Something around like a trillion.<br/><br/>There are only a few possible paths:<br/><br/>* Taxpayers put up about 1 trillion to cover those papers losses.<br/><br/>* Financial intermediaries lose 1 trillion in capital and the financial system disappears.<br/><br/>* Paper capital is created to balance those losses, and "goodwill" is part of that story<br/><br/>Or combinations thereof.<br/><br/>Since the issue is "paper" losses, that means accounting losses, and the SEC and company have been trying to find changes to the accounting rules that allow those "paper" losses to go unrecognized for a long time.<br/><br/>One of those is the famous facilities by which the "paper" losses are exchanged for cash/treasuries by a generous Fed, another is the suspension for a year of the mark-to-market rule, and now this "proposal" about good will.<br/><br/>Which is essential for another time tested accounting trick: to bury paper losses in a merger, as in ML/BoA. Well, goodwill (and taxation, and that has been taken care of) is a very important aspect of a merger, to trick up the accounts of the final entity.c «But is this way of going about it wise?»

Well, it depends on whether the current Republican administration wants to solve the problem or wants a japan-style solution.

The current problem is that there are a lot of pending losses waiting to be realized and made material and counted. At the very least there are 3 million houses overstock whose mortgages are to be written down. Something around like a trillion.

There are only a few possible paths:

* Taxpayers put up about 1 trillion to cover those papers losses.

* Financial intermediaries lose 1 trillion in capital and the financial system disappears.

* Paper capital is created to balance those losses, and “goodwill” is part of that story

Or combinations thereof.

Since the issue is “paper” losses, that means accounting losses, and the SEC and company have been trying to find changes to the accounting rules that allow those “paper” losses to go unrecognized for a long time.

One of those is the famous facilities by which the “paper” losses are exchanged for cash/treasuries by a generous Fed, another is the suspension for a year of the mark-to-market rule, and now this “proposal” about good will.

Which is essential for another time tested accounting trick: to bury paper losses in a merger, as in ML/BoA. Well, goodwill (and taxation, and that has been taken care of) is a very important aspect of a merger, to trick up the accounts of the final entity.c

]]> By: Richard Kline http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill.html#comment-15880 Richard Kline Thu, 18 Sep 2008 07:57:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill-as-capital/#comment-15880 Yes, and by Friday the banks will be allowed to count lint picked out of their navels as capital. ---And it will be worth more then their remaining 'goodwill,' because it will stink less. Yes, and by Friday the banks will be allowed to count lint picked out of their navels as capital. —And it will be worth more then their remaining ‘goodwill,’ because it will stink less.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill.html#comment-15847 Anonymous Thu, 18 Sep 2008 04:45:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill-as-capital/#comment-15847 How much Goodwill do the securities holders of these banks feel toward them now? How is the Goodwill holding up among foreign purchasers of Wall St bonds? Goodwill must be earned, just as AAA ratings must be earned, and it can be lost by disasters like the one now in progress.<br/><br/>Of course, I think of Goodwill from the point of view of a business man. Goodwill = customer satisfaction...very old timey notion.<br/><br/>River How much Goodwill do the securities holders of these banks feel toward them now? How is the Goodwill holding up among foreign purchasers of Wall St bonds? Goodwill must be earned, just as AAA ratings must be earned, and it can be lost by disasters like the one now in progress.

Of course, I think of Goodwill from the point of view of a business man. Goodwill = customer satisfaction…very old timey notion.

River

]]> By: alan von altendorf http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill.html#comment-15845 alan von altendorf Thu, 18 Sep 2008 04:38:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill-as-capital/#comment-15845 I still don't like it. Unsaleable hot air cannot be capital, much less Tier 1 on a par with AAA bonds.<br/><br/>BTW "hu flung poo" is the all time knock 'em out champ web moniker. Had me in stitches first time I saw that handle! I still don’t like it. Unsaleable hot air cannot be capital, much less Tier 1 on a par with AAA bonds.

BTW “hu flung poo” is the all time knock ‘em out champ web moniker. Had me in stitches first time I saw that handle!

]]> By: Hu Flung Pu http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill.html#comment-15833 Hu Flung Pu Thu, 18 Sep 2008 03:46:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill-as-capital/#comment-15833 Ok, I did a little research and the NY Times mis-reported this horribly. It's no big deal. Looks like the new regulation allows the GAAP deferred tax liability that arises from amortizing the goodwill for tax purposes (goodwill isn't amortized for GAAP reporting purposes) to count toward Tier 1 Capital. This actually makes sense. Modestly helpful to banks with goodwill, but not THAT helpful. The absolute maximum amount of goodwill that could be counted towards Tier 1 Capital would be 1/3 of goodwill, and that would only occur if the goodwill had been on the books for 15 years. My guesstimate is that at best (or worst, depending on how you look at it) maybe 10% of the goodwill out there will be able to count toward Tier 1 Capital. The Federal Reserve has a link that won't fit here. Back to your regularly scheduled financial fiasco... Ok, I did a little research and the NY Times mis-reported this horribly. It’s no big deal. Looks like the new regulation allows the GAAP deferred tax liability that arises from amortizing the goodwill for tax purposes (goodwill isn’t amortized for GAAP reporting purposes) to count toward Tier 1 Capital. This actually makes sense. Modestly helpful to banks with goodwill, but not THAT helpful. The absolute maximum amount of goodwill that could be counted towards Tier 1 Capital would be 1/3 of goodwill, and that would only occur if the goodwill had been on the books for 15 years. My guesstimate is that at best (or worst, depending on how you look at it) maybe 10% of the goodwill out there will be able to count toward Tier 1 Capital. The Federal Reserve has a link that won’t fit here. Back to your regularly scheduled financial fiasco…

]]> By: Torrance Stephens - All-Mi-T http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill.html#comment-15827 Torrance Stephens - All-Mi-T Thu, 18 Sep 2008 03:27:00 +0000 http://www.nakedcapitalism.com/2008/09/banks-now-permitted-to-count-goodwill-as-capital/#comment-15827 The <a HREF="http://rawdawgb.blogspot.com/2008/09/vultures-are-circling.html" REL="nofollow">the vultures are circling</a> and <a HREF="http://rawdawgb.blogspot.com/2008/09/fat-lady-aint-started-singin-yet.html" REL="nofollow">the fat lady aint started singin' yet</a> The the vultures are circling and the fat lady aint started singin' yet

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