Bradford & Bingley slams IFRS after £94m writedown

Bradford & Bingley has issued a thinly veiled criticism to IFRS after
suffering a £49.7m fair value loss on the worth of its assets in the wake of the
credit crunch.

In its
preliminary
results statement, the bank said that it had taken a £64.2m impairment on
its £125m stake in structured investment vehicles, and also wrote down £30.2m of
CDOs, the mortgage-backed debt packages offered to investors which have some
exposure to the US sub-prime market.

The FTSE 250 company said:’The volatility of interest rates and asset prices
has brought changes to accounting for financial instruments implemented under
the transition to IFRS into sharper focus in 2007.

‘Where in previous periods these movements have been immaterial, in 2007 the
group’s income statement contains a number of fair value movements that are more
significant. These fair value movements introduce volatility to reported profits
and are therefore not included in the underlying profit of the group.’

The fair value loss of £49.7m came about from derivatives contracts linked to
the CDOs losing value. Bradford & Bingley’s 2007 fair value loss dwarfs the
£0.1m it weathered in the year to 31 December 2006.

Bradford & Bingley has a relatively small exposure to SIV’s and CDOs but
other banks with riskier positions may take a much larger hit when they release
their figures in the next fortnight.

Further reading:

Fair value
shockwaves far from over