Eurozone Banks Can't Agree (with the Market) on How Much Greece Will Cost Them

Why is one bank in Germany accounting for a 51 percent loss on its holdings of Greek bonds, while another, in France, is only writing down those same assets by 21 percent? Moreover, why are auditors reviewing both accounts and coming to the conclusion that both accounts are somehow reasonable judgments? We spoke with Tom Selling on Benzinga Radio, a former SEC official who authors The Accounting Onion, because he is asking these questions. Selling:

"The enforcement regime is country-specific in Europe, and it varies by country from some modicum of enforcement to virtually none. France seems to be the wild west. It seems like basically the banks are reporting what they want and regulators are powerless to do anything about it. "I've read elsewhere that the German banks are marking a little bit closer to reality, but nobody else is. Perhaps the German banks can afford to mark a little closer to reality because maybe their exposure isn't as great as some of the other banks."

Tom points out that the SEC could take action in the absence of moves by European regulators to address the issue; however, it does not appear to be on their radar at the moment:

"I imagine at least some of these banks are what are known as foreign private issuers--that they furnish their financial statements to the SEC as well because they are either listed in the United States or they have sponsored ADR programs somewhere in the U.S. They are furnishing financial statements to the SEC, and so far, we haven't heard a peep out of the SEC about this issue either. That is because, I believe, they are treading very lightly on international accounting standards at this point."

Hans Hoogervorst, who chairs the International Accounting Standards board that sets the rules banks are supposed to be following with regard to these matters, was concerned enough to send a letter to the European Securities and Markets Authority recently. In the letter, he expressed concern over the way many European banks were accounting for those Greek bonds in their "available-for-sale" portfolios. These are set apart from another category, those bonds "held to maturity," which banks argue don't need to be marked to market for the fact that they have no intention of liquidating those assets. Selling actually thinks the mishandling of accounting for those bonds that are being held to maturity is likely a much bigger problem than those available for sale because they probably represent a larger dollar amount.

"In my mind, the Greek bond crisis really has exposed the artificiality of this whole concept. If you are holding Greek bonds, you have liquidity issues. You certainly have loss-of-value issues with respect to those Greek bonds. How nonsensical and inconsistent is it that some of the Greek bonds that you hold are going to get marked to market, and other Greek bonds that you hold--which are arbitrarily classified in a different cubbyhole--are going to get measured more gently? "If accounting standards were reasonable and they required companies to mark all of their marketable securities to market--would banks have gotten so deep into Greek bonds if they actually had real income statement and balance sheet exposure? These categories, "held to maturity" and "available for sale," are not available to give investors more information. They are there to give bankers the opportunity to manage their financial statements when they need to. And right now, they need to."

Doesn't seem like the creative accounting is inspiring a whole lot of confidence at present. Selling's article: Peeling the Onion on Accounting for Greek Bonds find us on Twitter @matthewboesler, @lukelavanway, @BenzingaRadio, @Benzinga