It contains the following sentence:
“The obvious question arises: why on earth is Regions Financial still allowed to exist and sucker more investors into believing it is anything even remotely close to a viable entity.”
And the article implies that this bank, rated as healthy by the media, has no actual value.
Can anyone explain this to me?
The homes I write mortgages for go belly up, and i should write it down… but I don’t have to?
Maybe an accountant Doper can chime in, but it looks to me like the accounting rules for financial instruments changed such that Regions Financial had to report the fair market value of these instruments in their quarterly report. Contrast that with the current rule still applicable to the annual report (unless I’m totally mistaken) that the loans held by the lender can be reported at their historical cost and a loan isn’t declared “lost” until management determines that it is probably uncollectible.
So to answer your question, a different accounting rule is in effect for the quarterly report that wasn’t in effect for the last annual report.
As to whether they’re bankrupt, listing the loans at fair market value probably understates their value (because the market is a mess right now), while treating the loans like you’re going to hold onto them until maturity and collect on all of them probably overstates their value (because you assume, for purposes of the financial statement, that none of the loans at that juncture are going to default). The true value is undoubtedly somewhere in between, but the FASB wants these institutions to err on the side of undervaluing their loans.
Incorrect, or at least misleading; as the article states, fair market values have been required in annual disclosures since 1993. The new rules add this requirement to quarterly disclosures as well. I wouldn’t know whether the “Annual Report to Shareholders” lists only book values, but the main point is timing, not type of disclosure. Prior to 1993, unrealistic book values were definitely a large and virtually undiscoverable problem.