Investors Revolt!

Maybe too strong a statement to call it a revolt but it was refreshing to see the results of the recent Keefe, Bruyette and Woods survey of the large institutional investor community about their view of the Financial Accounting Standards Board’s (FASB) Fair Value Accounting rules.

For those of us that have been following the conga line of “improvements” to balance sheet accounting and securitization, the news that fully two-thirds of those surveyed are either strongly or very opposed to the FASB recommendation is a breath of fresh air.  You heard that right; 66% opposed!

So what do we have here?  Is this a case of the poor investors simply not understanding what’s best for them? 

We don’t think so; not by a mile.

What we do have is a perfect example of one the primary faults of arm-chair quarterbacking.  Unless you’ve played the game, it can be hard to understand what the players want.  In this case, the tower that FASB sits in is clearly far removed from where their constituents toil and, on face, it would appear that the Board never really considered just how pervasive objections to these new rules are in the investor community.  Certainly, the FASB cannot deny that these objections were and have been raised at many points in time throughout the discussion of the need to revise the valuation rules.

The Keefe study (co-sponsored by Greenwich Associates) focused on investors in the bank loan market.  Their primary objections to the new standards lie in a lack of faith in mark-to-market valuations and the impact on both their own investment activities and the cyclical impact on values due to fluctuations in bank earnings and the US economy.

So, here you have the exact constituents for whom the new rules are written, saying that they don’t want the new rules, that it won’t help them and, in fact, it may hurt them.

We can only hope that, this time, maybe someone is listening.

About markferraris
Managing Principal Orchard Street Partners LLC

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