PARIS - Some European monetary institutions need to have booked bigger losses on their Greek government bond holdings in current outcomes announcements, the International Accounting Standards Board said in a letter to industry 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 jitters as well as a slowing economy.
In a letter addressed towards the European Securities and Markets Authority, the I.A.S.B. - which aims to turn out to be the global benchmark for financial reporting - criticized inconsistencies in the way banks and insurers wrote down the worth of their Greek sovereign debt in second-quarter earnings.
It said "some companies" were not employing market costs to calculate the fair worth of their Greek bond holdings, relying rather on internal models. When some claimed this was for the reason that the market for Greek debt had turn into illiquid, the I.A.S.B. disagreed.
"Although the level of trading activity in Greek government bonds has decreased, transactions are nonetheless taking spot," the board chairman Hans Hoogervorst wrote.
The E.S.M.A. was not immediately out there for comment.
The letter, which was posted on the I.A.S.B.'s site Tuesday immediately after being leaked towards the press, didn't single out certain countries or banks.
European banks taking a ?3 billion, or $4.two billion, hit on their Greek bond holdings earlier this month employed markedly various 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 expect 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 were expecting at the finish of June, the cut-off period for second-quarter outcomes.
Two French monetary businesses, the bank BNP Paribas and insurer CNP Assurances, on Tuesday defended their decision to make use of their own valuation models as opposed to market rates.
"BNP took provisions against its Greece exposure in full agreement with its auditors as well as the relevant authorities, in accordance with the plan decided upon by the European Union on July 21," a bank spokeswoman stated.
A CNP spokeswoman said the group's Greek debt provisions had been calculated in accordance with the E.U. strategy and in agreement with its auditors.
Some investors see the concern as serious, nonetheless, even if the STOXX Europe 600 bank index was trading higher on Tuesday.
"The Greek debt concern has been treated really lightly," stated Jacques Chahine, head of Luxembourg-based J. Chahine Capital, which manages ?320 billion in assets. "And it is 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 simply 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 no matter whether to adopt I.A.S.B. standards, that its rules are consistent and correctly represent what's happening in markets.
Auditors warned at the time against a patchwork approach that can confuse investors and concerns more than Greek haircut reporting will fuel calls for a pan-Europe auditor regulator.
"The impact is more likely to be to further cut down investors' confidence in obtaining bank debt, as opposed to sovereign debt," stated Tamara Burnell, head of financial institutions/sovereign study at M&G.
Working with the most aggressive markdown approach - namely marking to industry 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.
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 stated.
The European Commission said on Monday that there was no require to recapitalize the banks more than and above what had been agreed immediately after a recent annual stress test .
Author Resource:
This article has been written and researched by Paul Henderson, working alongside the top Accountants . Accountants Today working in London, Surrey and Sussex.
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