September 2, 2011 4:38 pm
The European sovereign debt crisis took a new turn this week after a claim that some banks and insurers should have taken bigger losses on their Greek government bonds in recent first-half results announcements.
The International Accounting Standards Board, which sets the accounting rules followed by listed EU companies, took issue with the way some banks and insurers had written down the value of these securities by one-fifth, while others cut by a half.
Those who arrived at a smaller loss by disregarding market prices in favour of a “mark to model” valuation were wrong, said Hans Hoogervorst, IASB chairman, in a letter to the European Securities and Markets Authority, a regulatory body.
“Although the level of trading activity in Greek government bonds has decreased, transactions are still taking place,” said the former Dutch finance minister.
Institutions who used mark to model – including France’s BNP Paribas and Société Générale – defended the practice, which tended to produce a 21 per cent “haircut”, or loss, in line with the terms of the second bail-out of Greece announced in July.
Auditors and regulators also came under fire for allowing companies to take such divergent approaches.
One senior accountant viewed it as a minor achievement that companies at least agreed that they had to endure some form of Greek writedown.
But there were exceptions even to this. For instance, Bâloise, a Swiss insurer, did not write down its Greek government bond holdings at all in its first-half results, arguing that the country had not yet defaulted.
Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.