What a year it was for BlackRock Inc., which consolidated six CDOs onto its balance sheet in September – with assets and liabilities increasing more than $2.5 billion – only to lift it all back off in January following the revision to Financial Interpretation No. 46.
The Financial Accounting Standards Board released the so-called FIN 46R on Dec. 24, 2003, almost 11 months to the day after the original Final Draft of FIN 46 was posted to the board’s Web site.
Like BlackRock, asset manager Eaton Vance was able to disclose similar news, although, unlike BlackRock, the firm had opted for the deferral to Dec. 31, and therefore went through fewer motions in the process. In its annual filing with the Securities and Exchange Commission, Eaton Vance said that it had concluded it was not the primary beneficiary in the six CDOs it manages. These CDOs have assets totaling about $2 billion, for which Eaton holds about $16 million in equity.
Separately, as a result of a revision to the accounting guidelines, American Express Co. took a smaller than expected charge to its earnings when it implemented FIN 46R. The company recorded a $13 million after-tax charge, compared with a $150 million after-tax charge anticipated in a company forecast last summer.
AmEx adopted the revised accounting rule Dec. 31, which resulted in the consolidation of $500 million in assets and $1.2 billion in liabilities, primarily associated with one CDO managed by American Express Financial Advisors and three secured loan trusts, according to the company’s annual report. The report was filed last week with the SEC.
In October, AmEx indicated that the charge would likely be smaller than it had initially projected. In July, AmEx had warned that it could consolidate up to $2 billion in assets.
In its current filing, the company said that FIN 46R did not impact the accounting of an additional $28 million in CDO tranches and $16 million in CDO residuals managed by AEFA.
The ones to watch…
Of the higher-profile firms that were mulling the effects of the original FIN 46 last fall, Lincoln National had yet to submit its annual filing as of press time. Lincoln was facing the consolidation of $1.5 billion in debt and $1.2 billion in assets associated with the outstanding CDOs it manages. Likewise, Federated Investors reported in October that if it were to implement FIN 46, it would take a charge of $105 million associated with the $1.1 billion in consolidated assets and liabilities.
IDS Life Insurance and John Hancock Financial also indicated they might be deemed primary beneficiary in CDOs they manage, and they had yet to release earnings as of press time. In October, IDS said it could consolidate up to $500 million. John Hancock, which took the deferral in November, manages close to $5.5. billion in CDOs. John Hancock is in a pending merger with Manulife Financial.
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