Contingent Liabilty Segregation and Estimation - FASB Dithers While Bank of America Seeks to Take Charges and Move On
Saying other things are more important, FASB continues to dither on estimating contingent liabilities - see here and this brief but biting story with some great quotes at the end about FASB's delays. The low priority assigned to contingent liabilities is especially hard to understand in this age of massive corporate bankruptcies by companies which failed to reserve for future liabilities (e.g. car companies), not to mention massive frauds and/or miserable business practices.
The topic of coping with contingent liabilities continues to crystallize for Bank of America. This week it moved forward by pushing bad mortgages into a "different" business unit (but not entity), and by selling its forced place insurance business (Balboa) to QBE, an Australian insurer. The stories are everywhere, but good ones are here and here at the NYT. These steps follow massive December and January billion dollar settlements with Fannie Mae and Freddie Mac for, in essence, fraud by Countrywide in its mortgage business. Meanwhile, lots of others are lining up and suing the banks for selling bad mortgages, including Allstate.
Morals to the story ?
- Contingent liabilities matter, and should be fully disclosed. FASB's delays are disappointing, at best.
- Segregating liabilities and claims is perceived as desirable to take the stock market's eye off of liabilities and problems.
- Too many masters of the universe create giant messes for millions of people, but then want to take an accounting charge and walk way.
One more note. Insurance companies, such as Allstate, constantly complain there is too much litigation by plaintiffs. But when their money is stake, Allstate is happy to be a plaintiff, as evidence by its suit against Bank of America. Actions speak louder than words.