Level III Assets Broken Down
Taking a look at the major institutions and their Level III Assets...
It's been an active day behind the scenes as we chew through the dew and sort it all out. It is worth mentioning that the discussion we had earlier regarding the November 15th FASB Rule 157 is picking up steam behind the scenes.
If we look at the major institutions and divide their Level III assets by their equity capital base, we arrive at the following calculations:
- Citigroup: Equity base: $128 billion, Level III: $135 billion. Ratio: 105%
- Goldman: $39 billion, Level III: $72 billion. Ratio: 185%.
- Morgan Stanley: $35 billion. Level III: $88 billion. Ratio: 251%.
- Bear Stearns: $13 billion. Level III: $20 billion. Ratio: 154%.
- Merrill Lynch: $42 billion. Level III: $16 billion. Ratio: 38%.
Again, whether this "matters" remains to be seen. What I will offer, with some degree of certainty, is that Hank, Ben and the rest of the den are fully aware of this dynamic. That's likely why we saw such aggressive actions from global central banks and, to that end, why the Treasury is pushing the super-conduit emergency bailout plan.
So you know and so it's said, I spent some time today chewing through FASB documents with our Minyanville accountant (think "Dave" when Kevin Kline tried to balance the budget). The November 15th date isn't a drop dead reporting date, it's simply a date of implementation going forward regarding the recognition of fair value.
Many of these disclosures won't "hit" until next year although, according to a study he shared with me from Deloitte, only six percent of companies (across a wide range of industries) have assessed how FASB 157 will impact the valuation of their assets and liablity.
Stay tuned on this---it may not be near-term business (and it may get Fannie Maed away, so to speak) but it's at the heart of the mark-to-market matter.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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