Berkshire Wrote Down U.S. Bancorp, Swiss Re After SEC Query

[dcollon]

http://www.bloomberg.com/news/2011-03-28/berkshire-wrote-down-u-s-bancorp-swiss-re-after-sec-query.html

[tooskinneejs]

Here is the actual letter...

 

http://www.sec.gov/Archives/edgar/data/1067983/000119312511024368/filename1.htm

 

 

[Parsad]

Whether philosophically correct or not from an accounting standpoint, they are not following GAAP on those positions.  I agree with Berkshire that those are not permanent impairments, but unfortunately those items should be written down under mark-to-market accounting, and then the realized gain incurred when they do eventually rise.  Mark-to-market may not be perfect, but after everything that has happened, it's better than the alternative that was used before. 

 

No one controls risk better than Berkshire, but you also don't want to create two sets of rules, where other less diligent institutions use the same argument and deceive regulators.  At least Berkshire said they would revisit the impairments on a quarterly basis and adjust accordingly.  Cheers!

[beerbaron]

What exactly is the latitude given by the FED to companies regarding stock ownership. I always tough that stock had to be marked to market...

 

BeerBaron

[gfp]

What exactly is the latitude given by the FED to companies regarding stock ownership. I always tough that stock had to be marked to market...

 

BeerBaron

 

All the equities were always being marked to market and all changes were reflected in quarterly comprehensive income and, of course, book value on pg. 1.  Berkshire isn't a trader using mark to market accounting and it shouldn't have to pass unrealized losses through the income statement if there hasn't been a material permanent impairment (like AIB) just like it doesn't pass unrealized gains through (besides rare exceptions like the Gillette-P&G merger and the BNI write up).

 

If KO goes up 2 Billion dollars in a quarter and USB declines 500 million, running -500m through the income statement doesn't communicate anything useful to investors.

 

[Parsad]

All the equities were always being marked to market and all changes were reflected in quarterly comprehensive income and, of course, book value on pg. 1.  Berkshire isn't a trader using mark to market accounting and it shouldn't have to pass unrealized losses through the income statement if there hasn't been a material permanent impairment (like AIB) just like it doesn't pass unrealized gains through (besides rare exceptions like the Gillette-P&G merger and the BNI write up).

 

If KO goes up 2 Billion dollars in a quarter and USB declines 500 million, running -500m through the income statement doesn't communicate anything useful to investors.

 

You're absolutely correct!  The only problem is that everyone else has to do so under GAAP.  How do you allow Berkshire to value their Level 1 assets one way, while other insurers value it another way?  It creates a bit of a quandry, regardless of how incorrect mark-to-market may be in certain circumstances.  Cheers!