New accounting rule pushes Deutsche Bank into profit
31 Oct 2008, Kevin Reed, AccountancyAge
http://www.accountancyage.com/aa/news/1773501/new-accounting-rule-pushes-deutsche-bank-profit
Taking advantage of new accounting rules has shifted Deutsche Bank into a profit instead of a loss.
The bank reclassified 25bn Euros (£19.7bn) of assets as loans it will hold until maturity. The shift allowed it to avoid 845m Euros of writedowns on some of its assets.
Avoiding the writedown helped raise net income by 536m Euros and led to it posting a quarterly net income of 414m euros.
The new accounting provisions allowed the bank to have a 'more proper treatment' of its assets, said its CFO Stefan Krause, reported the FT.
It had previously classified some assets as 'trading', which meant they were valued at market price through the profit and loss account. The assets are now described as 'available for sale', which is still at market value but the price movements are held on the balance sheet.
The provision is an easing of the controversial fair value mark-to-market accounting.
On Wednesday Schroders reclassified some of its assets, avoiding a £50m to its quarterly profits.
Further reading:
© Incisive Media Investments Limited 2012, Published by Incisive Financial Publishing Limited, Haymarket House, 28-29 Haymarket, London SW1Y 4RX, are companies registered in England and Wales with company registration numbers 04252091 & 04252093
Visitor comments
Reclassification Rule
The reclassification of assets and the improvement in profits because of a readjustment to the accounts and financial reporting is a dangerous precedence that will reduce confidence in transparent reporting. Further, the true performance of companies will no longer be an objective for business reporting. It no doubt poses a delima which will cloud judgement of markets for many years to come and can make it difficult for investors to make a prudent decision.
Posted by: Dr Jon Tay , 31 Oct 2008 | 00:00
transparency?
What if securities held by Deutsche bank never touch the level they were bought at? This change implies that a company will hold on to it's devaluing assets for an indefinite period of time, which is apparently not possible.
Doesn't it impair the transparency?
Posted by: Asif Dewani , 15 Nov 2008 | 00:00
Lack of understanding!
The comments already made show a
complete lack of understanding
of how the modifications to IAS 39 work.
Any permanent diminuition in the
expected maturity value of
the assets still has to be recognised.
What doesn't need to be recognised are
volatile and meaningless valuations
attributed to assets because of a
extreme market conditions.
It also brings EU banks into
line with their counterparts in US.
FASB, unlike IAS, enabled US banks
to reclassify assets in a paralysed market.
The changes to IAS39 bring parity, consistency
and an ounce of commonsense.
Posted by: Katie , 02 Dec 2008 | 00:00