Banking companies would be more affected than other businesses if the proposed shift to a single form of accounting for mergers is approved, analysts at Bear, Stearns & Co. said Monday.
Banks such as Wells Fargo & Co. and Mellon Bank Corp. could see the values of their shares rise almost overnight if the Financial Accounting Standards Board eliminates a merger accounting method known as pooling.
Other companies might rush to strike their next, biggest deal ever before the rules change.
Comments on the proposed accounting change are being accepted through Feb. 15, and Bear Stearns analysts said they expect a final standard to be in place by July 1, 2000. Changing the accounting rules would affect banks more than most because banks prefer to account for mergers as poolings.
Many details of the FASB proposal still need to be ironed out. For example:
Would the board force companies to restate all past poolings as purchases and how much time would the companies have to amortize the goodwill?
For investors, the change in the accounting rules would be most obviously seen in quarterly earnings reports. The market has generally awarded lower stock prices to companies that accounted for deals as purchases, because the accounting method creates goodwill that must be subtracted from earnings.
Companies such as Wells Fargo, Mellon, and BankAmerica Corp. have used purchase accounting for recent acquisitions, and the goodwill has significantly cut into their earnings.
But investors might reward these companies with higher share prices if their competitors start reporting earnings before and after goodwill is accounted for, said Sean J. Ryan, a banking analyst.
"It will be increasingly difficult for companies to produce illusory growth" by repeatedly shuffling their numbers after pooling, Mr. Ryan said.
Unlike poolings, which must be financed entirely with equity, purchase accounting allows companies to use equity, cash, or debt to pay for deals. Fixed-income analyst John Otis said bond analysts would view it as a negative if banks started issuing a lot more debt.
The analysts said during a conference call Monday that a compromise could be reached if the FASB adopts a "uniting of interests" form of accounting. Under such a plan, companies could gain the benefits of pooling if they are of similar size and executives from both companies share duties.
Such an accounting arrangement would have given officials at NationsBank Corp. a strong motivation to keep former BankAmerica Corp. chairman David A. Coulter, the Bear Stearns analysts said. Mr. Coulter's departure in October signaled to many on Wall Street that NationsBank had won the upper hand in this so-called merger of equals.
