NORWALK, Conn. – Credit union observers around the country see yesterday’s action by the Financial Accounting Standards Board as easing some of the strains on credit unions, but too late to help others.
Dennis Dollar, former NCUA Chairman and principal of Dollar Associates consulting, said corporate credit union earnings will look much better in 2009, than in 2008, thanks to yesterday’s actions.
"The good news in the mark to market rule change is that there will be greater flexibility going forward on how certain assets are classified in terms of their losses," Dollar told The Credit Union Journal yesterday. "Many of the hits to balance sheets come from the mark to market provision that says a security must be marked to an estimated value today even though the institution may intend and have the ability to hold it to maturity."
"The down side," said Dollar, "is that FASB did not allow that to be applied retroactively to 2008 and the impact is considerable for credit unions."
In fact, several corporate credit unions have delayed issuing their financial reports for 2008 in hopes the FASB would apply the new rules retroactively to last year and allow them to avoid taking tens of millions of dollars in charges.
Dollar asserted, however, that the accounting changes would not have saved US Central FCU or WesCorp FCU. Those corporates were taken over by NCUA, he noted, because of PIMCO’s report on past and projected actual credit losses at those institutions, forcing the federal regulator to put them into conservatorship.
An executive at the nation’s oldest credit union called FASB’s changes overdue. "While I commend FASB for their recent action, which resulted in easing the mark-to-market rules, I think the change is too little too late," said Daryl Cady, chief financial officer for St. Mary's Bank, Manchester, N.H. "Many companies have already recorded significant impairments through year-end and the cascading affect of doing so has already been felt across the industry."
"While amending the rule now may provide some relief on a going-forward basis, it doesn’t reverse what has already happened," said Cady. "In fact, a mid-course correction now may distort the picture even more. And the real issue remains, ‘What are the assets worth?' and ‘How should they be valued?’"
"We're pleased that FASB has taken this step," said Jack Braswell, president of Members CU, Winston-Salem, N.C. "Mark-to-market rules have in cases where a willing buyer and a willing seller do not exist have forced excessive, premature devaluation of troubled, yet still valuable, assets, painting a much gloomier picture of an organization's financial condition than is warranted."
"It has been our opinion," continued Braswell, "that market value information already included in footnotes should satisfy potential investors' needs to understand the market value of companies, rather than raking their balance sheets through the much of mark-to-(non-existent) market."
While the hold-to-maturity feature within the FASB rule changes will certainly benefit credit unions, they still do not solve all the problems, suggested Mike Moebs, CEO of Moebs $ervices in Lake Bluff, Ill. "Because we still have toxic assets."
The truly negative aspect of the changes come from the view the rest of the world will have on the U.S. stance on mark-to-market accounting, says Moebs, an economist by trade and a licensed CPA in California and Illinois. "The rule changes do not conform to what the rest of the world is doing," he observed. "The rest of the world is kind of where we were, and this will not sit well with the Europeans and Chinese. We are handing the Chinese further fodder to go after their one global currency."
