Watchdog urged to probe off-balance sheet

FSA building

Call to action: the FSA

MPs have made calls for the
FSA to probe off-balance
sheet ‘smokescreens’ in the wake of the capital markets turmoil.

As the bank reporting season drew to a close this week, and
RBS faced criticism for the
merger accounting of its ABN
purchase, the politicians questioned the transparency of the banks’

‘The FSA should consider
whether banks have been using these off-balance sheet vehicles for genuine
economic efficiency reasons, or as a smokescreen to hide behind, given that the
capital, reporting and governance requirements on these vehicles are lighter
than those incumbent on banks themselves,’ said the Treasury committee.

Audit heads from
PricewaterhouseCoopers were
hauled before the committee last year and quizzed on their valuations of
Northern Rock’s asset-backed debt packages, but conceded that they were unable
to fully answer the panel’s questions.

Analysts have been generally critical of the information released on
off-balance sheet structures.

‘Because of the limited information banks provided about their involvement
with these credit vehicles, it is impossible to predict just how much more they
could be forced to write off if market conditions continued to deteriorate,’ one
analyst said.

Separately, RBS came under fire this week over its results, which attempted
to strip out its acquisition of ABN Amro.

The Dutch bank made a loss, with critics saying RBS wanted to say it was
going to make money from ABN, but simultaneously saying it wanted to strip out
the acquisition to show organic growth rates.

Analysts at
JP Morgan
described it as ‘some of the poorest disclosure we’ve seen.’

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