BofA carries loans $44 billion above market value

Bank of America Corp (BAC.N) is carrying loans on its balance sheet marked at more than $44 billion above their fair value, the company said in its annual report filed with U.S. regulators on Friday.

The bank said it ended 2008 with $886.2 billion in loans, but estimated the fair value -- or market price -- for these loans as $841.6 billion.

The bank intends to hold these loans to maturity, not for sale, said spokesman Scott Silvestri, explaining why the loans are marked above market value.

The report showed the bank struggled throughout the year as losses on consumer debt including mortgages, home equity and credit cards piled up.

Falling home prices prompted the bank to modify more than 230,000 mortgages in 2008 to help homeowners stay in their homes -- but the value of these mortgages has continued to fall.

Along with losses from mortgages and other consumer loans, the bank said it holds $6.45 billion in impaired commercial loans, up from $2.14 billion at the end of 2007, according to the report.

Separately, Bank of America's investment bank lost more than $10 million on one in every four trading days in 2008.

The Charlotte, North Carolina-based bank has reported write-downs and credit losses of more than $60 billion since the credit crisis began in the middle of 2007.

Bank of America shares finished down more than 25 percent on Friday at $3.95, amid a broad rout of financial stocks after the announcement the government is converting its position in Citigroup Inc's (C.N) preferred stock to common shares to help restore investor confidence in that bank's capital position. Shares in Bank of America have fallen 72 percent since the start of the year.

http://www.reuters.com/article/ousiv/idUSTRE51R04L20090228

 

I guess marking them to market is an option.

I've always thought it weird how some asset classes you have to mark, and others not.

I suppose there is some rhyme or reason to it.

 

Feb. 26 (Bloomberg) -- Investors looking at the assets on a bank’s balance sheet simply want a good estimate of how much they are worth. It’s not easy getting a straight answer.

Consider yesterday’s disclosures by Regions Financial Corp. in the annual report it filed with securities regulators. For purposes of its balance sheet, Regions said it finished last year with $94.9 billion of loans that it was holding as investments. In a footnote, however, it said the “fair value” of those same loans was $79.9 billion, or $15 billion less.

It’s a similar story at Huntington Bancshares Inc. The balance-sheet value for its loan portfolio was $40.2 billion as of Dec. 31. Yet Huntington said the fair value of those loans was $33.9 billion. The bank’s annual report said the lower figure “reflected discounts that Huntington believed are consistent with transactions occurring in the market place.”

...

Fair-Value Push

The debate over whether loans should be marked to market values on the balance sheet -- just like derivatives and many other financial instruments -- has raged for years. Since 2005, the FASB and its London-based counterpart, the International Accounting Standards Board, have said they eventually want all financial instruments, including loans, to be measured at fair value, with gains and losses recognized on a quarterly basis.

U.S. banking regulators, echoing many bankers’ views, oppose expanding fair-value accounting further. They say it would be too difficult to implement for hard-to-value items and result in too much volatility in the numbers on banks’ financial statements.

Less Than Zero

In the marketplace, this argument is largely moot. The stock prices of Regions and Huntington, for example, already trade at huge discounts to the net asset values the banks claim on their books. The accounting rules say lenders can choose to record all their loans at fair value, if they want to. Like most banks, Regions and Huntington have chosen not to.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aw9VCSmMCu7I

 

February 25, 2009

VIA Electronic Mail (director@fasb.org)
Technical Director

Financial Accounting Standards Board
401 Merritt7, P.O. Box 5116
Norwalk.CT 06856-5116

File Reference; Proposed FSP FAS 107-b and APB 28-a


Dear Board Members and FASB Staff:
The Mortgage Bankers Association1 (MBA) appreciates the opportunity to
comment on the proposed FASB Staff Position (FSP), Interim Disclosures about
Fair Value of Financial Instruments (the proposed FSP). The purpose of the
proposed FSP is to increase the frequency of disclosures about fair value to
improve the transparency and quality of information provided to users of financial
statements.
FASB Statement No. 107 (Statement 107), Disclosures about Fair Value of
Financial Instruments, currently requires disclosures about fair value of financial
instruments in annual financial statements. The proposed FSP would require
such disclosures to be made in interim financial reports as well.
The proposed FSP would be effective for interim and annual reporting periods
ending after March 15, 2009.
The Mortgage Bankers Association (MBA) is the national association representing the real estate finance
industry, an industry that employs more than 280,000 people in virtually every community in the country.
Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation's
residential and commercial real estate markets; to expand homeownership and extend access to affordable
housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional
excellence among real estate finance employees through a wide range of educational programs and a
variety of publications. Its membership of over 2,400 companies includes all elements of real estate finance:
mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance
companies and others in the mortgage lending field.

MBA's Comments
Support of Proposed FSP: MBA recognizes that the proposed FSP will require
more disclosures under what are already tight reporting deadlines. However,
given the current hybrid accounting model where some assets and liabilities are
carried at amortized cost and some at fair value, MBA recognizes users of
financial statements would be better served having fair value information on an
interim basis. Since the required disclosures are provided on an annual basis,
entities should already have infrastructure in place to prepare those disclosures.
Accordingly, MBA supports the proposed FSP. However, for SEC registrants,
the interim reporting period is much shorter than the annual reporting period.
Therefore, MBA asks that FASB continuously keep in mind the shortened interim
reporting time frame when considering the expansion of annual disclosures to
interim periods.
Support for Strategic Review of Fair Value Project: Paragraph 3 in the
background section of the proposed FSP refers to a recent addition to the FASB
agenda of a joint project with the International Accounting Standards Board
(IASB) to address the complexity related to recognition and measurement of
financial instruments (joint fair value project). MBA recognizes that there is a
growing conflict of opinion on the usefulness of fair value accounting as now
envisioned in the accounting rules. Accordingly, MBA strongly supports the joint
fair value project.
The MBA appreciates the opportunity to share these comments with the Board.
Any questions about MBA's comments should be directed to Jim Gross,
Associate Vice President and Staff Representative to MBA's Financial
Management Committee, at (202) 557-2860 orjgross@mortgagebankers.org.

http://www.fasb.org/ocl/FSPAPB-1/53572.pdf