[OPE] Gillian Tett and the SIVilis of financial accounting

From: Jurriaan Bendien <adsl675281@telfort.nl>
Date: Fri Sep 18 2009 - 10:42:06 EDT

(...) Barclays plans to sell $12.3bn of credit assets to a "newly
established fund" called Protium Finance - which will be independent but
mostly financed by a loan from Barclays (...) Protium is not focused on
regulatory arbitrage: those $12.3bn assets will stay on Barclays' balance
sheet for regulatory purposes, in the sense that the bank will be forced to
make big capital provisions against a $12.6bn loan it is extending to
Protium. Moreover, Protium is not exposed to the funding risk that blew up
the SIVs [structured investment vehicles], thanks to that monster loan.
(...) by selling those $12.3bn assets to Protium, what Barclays is
essentially doing is taking a pile of toxic items out of its front room (ie
the balance sheet) and stuffing it into an entity that is not inside the
house (the garage, or cellar). (...) while the British bank is going to
count the Protium assets as being "on balance sheet" for regulatory
purposes, it is removing the assets from the balance sheet in accounting
terms, since Protium is legally "independent", based in the Cayman Islands.
That means the bank will not need to report the mark-to-market value of
those assets, or reveal the source of equity finance for Protium that
supplements the Barclays loan. Nor will it need to control the pay of the
people running Protium, since they do not count as Barclays staff. (...) the
really dirty secret that currently bedevils the whole financial reform
debate is that the more that regulators force banks to clean up their "front
rooms" (ie regulated activity), the greater the risk that activity will flee
to unregulated corners of finance - if nothing else because financiers have
little desire to subject their pay to public scrutiny. In theory, regulators
could prevent that outflow, if they were willing to clamp down on the
unregulated world in a co-ordinated way. In practice, though, western
leaders are finding it so tough to agree on how to reform the front rooms of
finance that I seriously doubt they will have the energy to attack the
cellars too.

Everybody knows
A little place like kokomo
Now if you wanna go
And get away from it all
Go down to kokomo


ope mailing list
Received on Fri Sep 18 10:44:50 2009

This archive was generated by hypermail 2.1.8 : Wed Sep 30 2009 - 00:00:02 EDT