RegulationAccounting StandardsBlackstone founder slams fair value

Blackstone founder slams fair value

Stephen Schwarzmann is convinced that fair value has forced accountants to overstate the problems at the largest US banks

The co-founder of private equity group Blackstone has blasted the fair value
accounting rule for the collapse of the financial markets.

Stephen Schwarzmann is convinced that fair value has forced accountants to
overstate the problems at the largest US banks.

‘From the C.E.O.’s I talk with, the rule is accentuating and amplifying
potential losses. It’s a significant contributing factor,’ Schwarzmann told the
New York Times.

Fair value caused Citgroup to write down $5.9bn (£2.9bn) while Merrill Lynch
was forced to write down $8.4bn (£4.2bn).

Standard setters say the rule forces banks to use market values for assets
instead of internal models, which leave room for manipulation.

But problems arise when there is no trading floor or market for assets. In
such cases assets are marked down to zero.

Schwarzmann says this is wreaking havoc on the financial system and is one of
several figures campaigning in Washington to change the rule.

Citigroup’s head of accounting policy Bob Traficanti said that the bank had
‘securities with little or no credit deterioration, and we’re being forced to
mark these down to values that we think are unrealistically low.’

But fair value supporters say that if Schwarzmann and others get their way,
companies may mark-to-market when it suits them and look the other way when it
doesn’t.

Further reading:

US
watchdog begins fair value education drive

SEC announces fair value roundtable

Bonderman slams fair value

Related Articles

Demystifying GDPR for accountants

Accounting Standards Demystifying GDPR for accountants

2w Ellen Temperton, Lewis Silkin
EY fined £1.8m over Tech Data audit

Accounting Standards EY fined £1.8m over Tech Data audit

2m Emma Smith, Managing Editor
The great professional services shake-up

Accounting Standards The great professional services shake-up

3m Fergus Payne, Lewis Silkin
What do clients actually want from an accountant?

Accounting Standards What do clients actually want from an accountant?

4m Emma Smith, Managing Editor
Accountants shouldn’t neglect hybrid mismatch anti-avoidance rules

Accounting Standards Accountants shouldn’t neglect hybrid mismatch anti-avoidance rules

4m Alison Conley
Membership of the accountancy profession on the rise

Accounting Standards Membership of the accountancy profession on the rise

5m Alia Shoaib, Reporter
The real price of mates' rates in the provision of professional services

Accounting Standards The real price of mates' rates in the provision of professional services

5m DAC Beachcroft
IASB overhauls insurance accounting with issuance of IFRS 17

Accounting Standards IASB overhauls insurance accounting with issuance of IFRS 17

7m Alia Shoaib, Reporter