Friday, October 24, 2008

A bit of sense

OSLO, Oct 24 (Reuters) - Norway's biggest banking group DnB NOR said onFriday that it would reverse write-downs worth 2.59 billion Norwegian crowns($369 million) on its liquidity portfolio due to new accounting rules. The move follows new regulations announced by Norway's finance ministryon Oct. 16, that allowed the reclassification of trading portfolios to"held-to-maturity investments". DnB NOR said its liquidity portfolio would fitinto this category. "After the reclassification, the accumulated write-downs will be reversedover the residual maturity of the portfolio, which averages 3.25 years, and willbe recorded under net interest income," DnB NOR said in a statement. "There have been no actual losses or events of default in the portfoliosince the start of the financial crisis, and the portfolio is still of superiorquality," Dnb NOR added. "If no reclassification had been made, the group would alternatively havecharged 1.199 billion crowns to the 2008 third quarter accounts due a furtherwidening in margins." (Reporting by Aasa Christine Stoltz)
What this means is, instead of the mark to market that has decimated the banks, in Norway, they can spread the "mark to market" value over the life of the loans.
So, for example, instead of writing off $369 million TODAY, they only have to write off just over $100million today. But if NEXT year the mark to market is not $269 million loss but say only $100million, they still have 2.25 years to final maturity and would only need to write off $45million. And of course the write down helps their tax position too.
Good thinking.

No comments: