CDO manager petitions FASB

Published 2 Min Read

John Hancock Financial Services submitted a letter yesterday to the Financial Accounting Standards Board for its consideration at today’s meeting. Last week FASB added a discussion of the unresolved staff position related to FIN 46 and the expected loss/expected residual return analysis to the agenda .

Hancock is most concerned with whether or not fees paid to a decision maker — if this enterprise has no other interests in the VIE — should be included in the expected residual return analysis.

This issue is especially pertinent to CDO collateral managers, which are decision makers and collect fees. In its letter to FASB, Hancock notes that it may have to consolidate $3.9 billion related to CDOs it manages.

“The application of FIN 46 to CDOs and the attendant consolidation of operating gains and losses on to John Hancock’s books leaves shareholders and investors with a damaging misimpression of the company’s financial health,” Thomas Moloney, CFO at Hancock, writes in his letter. “In informal discussion, the rating agencies have assured us that they will continue to focus on the economic realities of these arrangements, regardless of the FIN 46 reporting requirements. It would be unfortunate if a less sophisticated investor were misled into believing that the consolidated losses reflected the true state of affairs for the reporting companies.”

Thanks to Marty Rosenblatt for making us aware of this.


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