|
|
Enron Mail |
ISDA PRESS REPORT - MARCH 1, 2001
* FASB Excludes Joint Ventures From Business Combinations Project - BNA * EP Committee hears Lamfalussy on financial services - Reuters * Bank regulator intervenes in Turkish crisis - Financial Times * Slightly Altered Bankruptcy Bill Clears Senate Committee - American Banker FASB Excludes Joint Ventures From Business Combinations Project BNA - March 1, 2001 NORWALK, Conn.--The Financial Accounting Standards Board Feb. 28 wrestled with how to define joint ventures, business enterprises intended to be outside the scope of rules on business combinations, and the kind of reporting that will leave deeper imprints on firms' earnings statements than current practice. FASB specifically excluded joint ventures from its pending proposal on accounting for mergers and acquisitions. The proposal is expected to yield final rules in late June. The rationale for the decision to exclude joint ventures is the idea that there exist shared enterprises or mutually beneficial projects of companies or other entities that do not represent an acquisition of one enterprise by another. Instead, two or more existing corporations, governments, or perhaps even individual people may combine assets and create a genuinely new enterprise to, for example, develop a new product or technology. Such joint ventures often carry with them veto rights of the venturers that typically are not enjoyed by shareholders of a public company. Goal Is Speedy Issuance In addition, FASB members have stressed their goal of issuing as quickly as possible a standard to remedy long-standing problems in the use of the pooling-of-interests method of accounting in more bread-and-butter corporate combinations. In the past, joint ventures have presented difficult definitional problems. They are a focus of the "phase two" of the board's business combinations project, which deals with "new basis" accounting issues. At the same time, FASB believes the topic of joint ventures warrants action--or at least some clarification--to address "the misapplication of joint venture accounting to transactions that should be accounted for as business combinations," according to a recommendation of the board's staff endorsed at the Feb. 28 meeting. Under current accounting practice for joint ventures, the assets in play are reported on a carryover basis at historical cost. That treatment mirrors the effect of a "pooling," under which the book values of the assets of two combining companies are merely added together, leaving no dent on the income statement. With the impending issuance of the new rules on combinations, FASB would bar poolings and instead require use of the purchase method of accounting. Under purchase accounting, one company is identified as the acquirer. It must record the cost of purchasing a company on its books whether it uses cash or exchanges stock to acquire the target firm. APB 18's Description Clarified In defining joint venture, FASB Feb. 28 tentatively decided to retain the description of the term in Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. It also would add the clarifications to help draw boundaries around use of joint venture accounting in areas where the planned rules on combinations should come into play. The term " 'corporate joint venture' refers to a corporation owned and operated by a small group of businesses ("the joint venturers") as a separate and specific business or project for the mutual benefit of the members of the group," APB, the rulemaking board that preceded FASB, stated in Opinion No. 18. "A government may also be a member of the group." APB said the purpose of a joint venture "frequently" is to share risks and rewards in developing a new market, product, or technology and to pool know-how and resources to reach the joint goal. In addition, such a corporate joint venture "usually" provides an arrangement under which each venturer may help manage the venture and "have an interest or relationship other than as a passive investor," according to APB No. 18. In extended discussion that showed how difficult the issue of joint ventures is, FASB agreed most strongly on adding, by way of clarification, that the participating rights entailed in taking part in a joint venture have some economic substance beyond shareholder rights. Along those lines, FASB and its staff plan to refer to guidance completed in 1998 by the board's Emerging Issues Task Force (EITF Issue No. 96-16). That guidance is used for investor's accounting for an investee when the investor has a majority of voting interest in a firm but the minority shareholder or shareholders have certain approval or veto rights. Sticky Issues Two other issues to be taken up in the planned clarification proved to be sticky Feb. 28. First, the board will try to resolve whether an individual person can be a joint venturer, in other words, whether an individual's participation in what is termed a joint venture can mean that the label is legitimate and not simply form part of a cover for what in reality is a business combination or acquisition. That issue carries some relevance internationally, as pointed out by Michael Crooch, a FASB member. In some countries, laws require that a citizen of that country be a partner--if not a majority shareholder of record--in an enterprise financed by a foreign company. The last issue confronting FASB pertains to planned transactions. The board posed the following question: If a company planned at the date of formation of the venture to issue a public offering of stock stemming from the venture, was the enterprise a joint venture? What if the offering of stock were unplannned? In coming weeks, FASB's staff plans to work on answering those questions and return to the board with recommendations. "We need to take this around the track one more time," said FASB Chairman Edmund Jenkins. The board plans to make the envisioned language on joint ventures part of the standard on business combinations rather than place it in the planned rules' basis for conclusions. Derivatives Guidance to Be on Web Separately Feb. 28, FASB approved clarifications to cure some confusion about use of guidance on the board's rules on derivatives and hedge accounting, Statement No. 133. The guidance, developed with the help of the board's Derivatives Implementation Group, was cleared previously by the board. (DIG Issue No. H8, Measuring the Amount of Ineffectiveness in a Net Investment Hedge). FASB plans to post the revised guidance March 1 on its World Wide Web site. EP Committee hears Lamfalussy on financial services. Reuters English News Service - March 1, 2001 Lamfalussy and financial services - MEPs seek "call back" mechanism Appearing before the Economic and Monetary Affairs Committee, Alexandre LAMFALUSSY , chair of the Group of Wise Men on Financial Services, responded to concerns raised by MEPs seeking a "call back" mechanism as part of a new approach to speed up the integration of Europe's financial markets. The committee wants to retain the right to review legislation as it passes through various processes, should this be considered necessary. Mr. LAMFALUSSY has proposed setting up two new committees, an EU Securities Committee and an EU Securities Regulatory Committee, to help speed up necessary financial reforms. He has offered to allay Parliament's concerns by keeping MEPs informed of the work of both committees by the provision of documents, minutes and agendas and the introduction of a procedure whereby if Parliament passed a resolution taking the view that the Commission exceeded its legislative powers then the Commission "should take the utmost account of the European Parliament's position", a procedure which he admitted did not amount to a formal call back position but would in practice amount to the same thing. At the same time he could not envisage the Commission ignoring Parliament's view. In the ensuing discussions attention focussed on whether or not this amounted to sufficient controls on the Commission and the proposed European Securities Committee. One fear is that this new body - which Mr. LAMFALUSSY recommends should be chaired by the Commission but composed of high level national civil servants of state secretary level - would be the key decision-making body responsible for the technical details and under the control of national governments. The report will be discussed at the March plenary and the committee will meet again next week with a view to proposing a draft resolution to plenary. Bank regulator intervenes in Turkish crisis Financial Times - March 1, 2001 By Leyla Boulton Uncertainty over the Turkish government's next steps in the economic crisis gripping the country continued yesterday, as the Ankara Chamber of Industry said foreign companies were refusing to accept letters of credit issued by Turkish companies. Local banks were also reported to be freezing personal and company loans and the use of credit cards. In its first move since the crisis erupted last week, the Banking Regulation and Supervision Agency took control of a small, troubled bank, Ulusal Bank, while Bulent Ecevit, prime minister, expressed the hope Ankara could secure a Dollars 25bn loan from foreign banks to help it through the crisis. Separately, the government expressed hope that Kemal Dervis, a top Turkish economist at the World Bank in Washington, would accept the job of central bank governor. The post has been vacant since Gazi Ercel, the former governor, resigned last weekend, after the government was forced to allow the free float of the Turkish lira. Turkish officials are now negotiating with the IMF and World Bank a revised disinflation plan, together with a bank restructuring strategy. But they are not expected to make any announcements before the start on Monday of the week-long religious holiday of Eid al-Adha, and before the central bank governor and treasury chief are replaced. Despite Mr. Ecevit's optimism over future loans, analysts and bankers said it was more important for the government to show it was serious about economic reform in general and bank restructuring in particular. Apart from implementing radical fiscal measures and privatisation, this meant closing any other unhealthy institutions among 27 privately owned Turkish commercial banks to counter the twin shock of a big jump in interest rates followed by a devaluation. "If the bad banks are not closed down, they will ruin the market for the healthy ones," said one senior banker, who declined to be identified. Aluk Akdogan, analyst at Salomon Smith Barney, concurred, saying the country's four biggest private banks, still seen as sound, accounted for 75 per cent of the industry's Dollars 10bn equity. But their net foreign exchange liabilities - which he estimated as not exceeding 30 per cent of their equity base - could become more difficult to trim if weak banks were allowed to continue to drain available liquidity. The government also faces the challenge of dealing with four state-owned banks that account for 40 per cent of deposits and have accumulated historic losses of at least Dollars 20bn. But analysts say dealing more effectively with the state-owned banks also risks uncovering corruption, which could in turn hurt individual members of the three-party coalition government. "This is above all a crisis of political leadership," said Charles Blitzer, an economist who follows Turkey closely. Slightly Altered Bankruptcy Bill Clears Senate Committee American Banker - March 1, 2001 By Nicole Duran WASHINGTON - The Senate Judiciary Committee cleared the bankruptcy overhaul bill Wednesday, eliminating one sticking point but leaving several others for Thursday's anticipated floor action. The legislation appears headed for passage in both chambers. "They're not going to stop it," Judiciary Chairman Orrin Hatch said of the bill's opponents after the committee's lO-to-8 vote in favor of the bill. The Utah Republican said that opponents could slow the legislation down but predicted they will ultimately fail "unless the entire process breaks down and there is no bipartisanship." The House cleared the way for a vote on its version of the bankruptcy bill Wednesday afternoon and was expected to begin debate this morning. The Senate Judiciary Committee accepted some Democratic amendments Wednesday, most notably one by Sen. Charles Schumer, D-NY, that would prohibit people convicted of crimes from filing for bankruptcy to avoid paying court-ordered fines, penalties, or damages. Similar amendments that specifically applied to people convicted of violence against abortion clinics held up identical bankrupt- -cy legislation in the 106th Congress before it eventually passed, only to be pocket-vetoed by then-President Clinton. Sen. Schumer modified his amendment to eliminate all specific references to abortion. He scored again when the committee unanimously agreed to adopt his "netting" amendment. The provision is designed to limit the damage that can occur when a company that holds derivatives contracts files for bankruptcy. Under current law, derivative contracts are frozen in a bankruptcy proceeding, which prevents creditors of a bankrupt institution from settling their obligations. The amendment would allow creditors to reconcile, or "net out," their derivatives contracts, and thus reduce their losses. Sen. Hatch and Sen. Patrick Leahy of Vermont, the ranking Democrat on the committee, collaborated on an amendment to protect consumer privacy. Their amendment, adopted on a voice vote, would prohibit companies filing for bankruptcy from selling client lists containing personal information, such as Social Security numbers, as a way to pay off creditors. The provision also would create a consumer privacy ombudsman to protect consumers' interests in bankruptcy court. Sen. Leahy said the ToySmart.com case revealed the need for such a provision. The company had a privacy statement assuring customers that personal information would be kept confidential, but when it went under, the bankruptcy judge ordered it to sell one of its only assets - its customer list - to pay off its debts, Sen. Leahy said. Sen. Russ Feingold, D-Wis., a vocal bankruptcy opponent, got about half his amendments approved outright and agreed to save some of his more controversial provisions for the Senate floor. Two of his victories concern farming. One of his amendments would make it easier for farmers to qualify for more lenient Chapter 12 terms by lowering the amount of a filer's income that comes from farming operations, to 50% from 80%, and by doubling the debt limit to $3 million. The other would ensure that any bankruptcy payment plan leaves a farmer with enough money to continue farming. The panel also agreed to a modified version of Sen. Feingold's amendment dealing with renter's eviction during bankruptcy proceedings. The committee's work Tuesday and Wednesday still left about half of Democrats' 30-odd amendments to be tackled on the Senate floor. Some of the more nettlesome outstanding points concern whether bankruptcy filers can keep expensive homes and how much information credit companies must provide consumers about interest rates and minimum payments. **End of ISDA Press Report for March 1, 2001** THE ISDA PRESS REPORT IS PREPARED FOR THE LIMITED USE OF ISDA STAFF, ISDA'S BOARD OF DIRECTORS AND SPECIFIED CONSULTANTS TO ISDA. THIS PRESS REPORT IS NOT FOR DISTRIBUTION (EITHER WITHIN OR WITHOUT AN ORGANIZATION), AND ISDA IS NOT RESPONSIBLE FOR ANY USE TO WHICH THESE MATERIALS MAY BE PUT. Scott Marra Administrator for Policy & Media Relations ISDA 600 Fifth Avenue Rockefeller Center - 27th floor New York, NY 10020 Phone: (212) 332-2578 Fax: (212) 332-1212 Email: smarra@isda.org
|