FASB: You Can Use Judgment When Fair Valuing Assets In Inactive Markets

FASB, 10 October 2008

The FASB recently issued guidance to FAS 157, which states that companies may use judgment, in addition to market information, in certain circumstances when valuing assets that have inactive markets. The valuation should be done in accordance with existing rules, which require adjustments based on the best available information on similar assets or liabilities.

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Our view: While not a significant policy change, the guidance may be used by companies who have yet to file their Q3 returns and provides guidance for how to deal with the increasingly common situation of assets in inactive markets.

Companies Focused on Cost-Saving Plans

Financial Times, 14 October 2008

Cadbury announced further job cuts as part of the cost-cutting campaign they embarked on last year. Many of the job losses included regional-level management.

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Our view: Many companies are embarking on cost-cutting campaigns given the current economic environment. While most companies may be tempted to run toward proximate and relatively fixed costs (such as general and administrative spend), the best will win the cost management game by focusing their attention on reductions in cost of goods sold (COGS). COGS savings offer sustainable long-term cost improvements that overhead reductions do not. In fact, cutting G&A can actually make a company less efficient. Click here for more information.

Government Intervention: We’ve Been Here Before

The New York Times, 14 October 2008

While the federal purchasing of bank shares may seem unprecedented, the U.S. government has a history of purchasing or nationalizing critical assets in times of economic vulnerability. In most cases, these purchases were relatively short term, and the government acted as a steward, not an active owner—insight that, if true for this case, may indicate that the situation will revert to normal within a few years.

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Our view: The US government may well exit the banking business quickly, but the death of independent investment banks holds real and significant consequences for the U.S. financial system. With long-time industry gurus predicting dramatic changes on everything from leverage ratios to exec comp packages, the most immediate change is likely to be a dramatic reduction in risk-taking behavior, ultimately impacting the size and type of investments financials will take.

Strong Long-Term Outlook for Indian Economy

The Economist, 14 October 2008

Although India has been hit hard by the events of the past month, its measured pace of economic reform has insulated it against more serious long-term dangers. Furthermore, Indian companies have strong balance sheets at precisely the time good international companies are coming into the market. The medium to long term could see India become even more attractive to investors than it was before the current shake-up.

Related Item: The India Briefing is a quarterly publication reviewing the latest business developments in the country, including recent research and data.

Daily Capital Markets Review: U.S. to Take $250 Billion Bank Stakes; Markets Slip on Recession Worry

Corporate Executive Board, 14 October 2008

This five-page summary includes news items regarding global liquidity, the TED spread, commercial paper and T-bill rates, currencies and commodities, and corporate debt spreads. If you would like to receive the Review after markets close (as opposed to the next morning), please click here.

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