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VISA stock accounting tips offered for CUs

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WASHINGTON (1/11/08)—Credit unions currently sorting through the complex accounting issues associated with treatment of VISA Class B stock may find value in an analysis being released today by the Credit Union National Association’s (CUNA’s) Accounting Task Force. Noting an absence to date of guidance from either the Financial Accounting Standards Board or the American Institute of Certified Public Accountants, Task Force Chairman Scott Waite , working with CUNA and in consultation with accounting regulators and practitioners, has developed tips for credit unions. However, Waite and CUNA urge all credit unions affected by the stock offering ultimately to consult their own accountants for specific guidance for their situations. “Although there is yet to be complete consensus, here is how a number (of practioners) are accounting for the Visa stock,” said Waite, who is also SVP-CFO of Patelco CU, San Francisco. “It takes into account Visa's restructuring agreement plan under which some of the proceeds of the IPO will be used to fund an escrow account to pay for certain litigation and settlement costs.” The CUNA analysis states:
* Financial Institutions should record their investment in VISA USA common stock received at its historical cost (carryover basis) which is most likely $0 (per SEC); * When and if recognized in 2008, the stock exchanged from VISA USA common stock to CLASS B common stock should be recorded at its carryover basis, in other words $0 (per SEC); * A liability should be established in 2007 for both the Amex settlement and the Discover estimate per FIN 45 and FAS 5: * The amounts are $2.065 billion for AMEX and $650 million for Discover – as disclosed, recorded, and SEC filed by VISA with the SEC; * Technically a FIN 45 liability should also be established for the remaining pending litigation; * A charge should be taken through earnings; * The amount is an estimate but should be generally based on an institution’s membership proportion of interest in VISA USA times the AMEX and Discover amounts; * Despite the outcome of the IPO and its potential stock value, the restructuring agreement (already in effect in 2007) contains an indemnification clause (see VISA SEC filings S4 page 96 and VISA SEC filing 10K, item 3, page 49) that is now being considered the member’s guarantee to pay as its liability, not VISA’s; * The escrow will be funded when and if the IPO is completed by calculating a pro rata reduction of the stock held by financial institutions that may be converted to CLASS A stock so that the escrow account will have a balance to pay the litigation settlement. We understand that the SEC has indicated that the pro rata value of stock deposited in the escrow account should be considered “as if sold” and a gain recorded when the IPO is complete but only to the extent that a FIN 45 and FAS 5 liability was previously recorded. Or course this makes a timing difference in the recognition of the litigation indemnification and the gain of the conversion ratio of the shares used to fund the litigation escrow; and * The payment of the litigation costs by VISA members in the form of receiving less stock (net proceeds) still constitutes a payment by the members regardless of any exchange of cash.
This CUNA information is based on the the general conclusion that there will be carryover basis in the stock in 2008 and a liability for the fourth quarter of 2007 for the indemnification of litigation losses, Waite stated. He added that the analysis is based on FAS 5 for settled cases and FASB's FIN 45 for the pending litigation . He reiterated that affected credit unions should work with their accountants to ensure they are accounting for the stock and related issues properly.

Frank We-told-you-so speech on subprime other issues

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WASHINGTON (1/11/08)--The chairman of the House Financial Services Committee has announced he will, in a speech, present an argument that the country’s subprime mortgage problems are a case in point against a “widely held belief” that deregulated markets perform better. Rep. Barney Frank (D-Mass.) is scheduled to make his remarks to the Kennedy School of Government, at Harvard College, in Cambridge, Mass. on Jan. 14. Frank’s office announced Thursday that the chairman will present a speech entitled “We Told You So: A Liberal Perspective on 21st Century Capitalism.” The subprime mortgage problems and the associated financial crisis that started last summer is a case in point, Frank will argue, in which financial innovation--coupled with the lack of regulation and government oversight--now threatens the overall economy. More broadly, Frank is expected to discuss his view of the role of regulation in the modern economy. This event is cosponsored by the Institute of Politics, the Mossavar-Rahmani Center for Business and Government, the Rappaport Institute for Greater Boston, the Regulatory Policy Program, and the Taubman Center for State and Local Government. Congress adjourned for a winter recess on Dec. 20. The House is scheduled to return to session on Jan. 15, the Senate on Jan. 22.

Inside Washington (01/10/2008)

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* WASHINGTON (1/11/08)--California Assemblyman Ted Lieu (D-Calif.), chairman of the state Banking and Finance Committee, is working to pass a state bill that would require lenders with state licenses to fill out monthly reports with their loan modification data. The information would then be publicly available (American Banker Jan. 10). The bill is scheduled to be voted on Monday. Senate Banking Committee Chairman Christopher Dodd (D-Conn.) has introduced legislation that would require loan servicers to report their data to the Federal Reserve Board. Though some lawmakers are pushing for reports, Federal Deposit Insurance Corp. Chairman Sheila Bair has stated that the requirements in legislation are unnecessary. The industry is willing to file the reports voluntarily, she stated, noting that the Hope Now alliance could be enough. Hope Now is a group that aims to improve outreach to assist struggling borrowers ... * WASHINGTON (1/11/08)--The Office of Federal Housing Enterprise Oversight (OFHEO) has issued revised policy guidance on the examination of mortgage fraud programs for Fannie Mae and Freddie Mac. The guidance details standards for overseeing the programs the government-sponsored enterprises have created to minimize fraud. The new guidance permits the enterprises to designate scenarios that rise to a pattern of reportable cases of mortgage fraud or possible mortgage fraud; expands the immediate notification requirements to the OFEHO to include situations involving insider fraud; revises the timeframe and format for reporting to follow the Department of Treasury’s Financial Crimes Enforcement Network requirements; and adds clarification to the definition of mortgage fraud ... * WASHINGTON (1/11/08)—A regulatory outlook in the Jan. 10 issue of American Banker noted the following: The Internal Revenue Service is thinking about new restrictions on tax preparation companies that offer refund anticipation loans to ensure that selling the loans and preparing the returns are completely separate functions; the Federal Reserve Board is expected to soon offer a rule to define unfair and deceptive practices for the mortgage and credit card industries; and the Department of Housing and Urban Development may soon release a new, scaled-back Real Estate Settlement Procedures Act overhaul plan, which would set standards for good-faith estimates for borrowers and provide more disclosure of loan terms …

C-SPAN airs live CUNA-sponsored election chat

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WASHINGTON (1/11/08)—-C-SPAN television yesterday gave political junkies nationwide access to a presidential election discussion organized by the National Journal and MSNBC and co-sponsored by the Credit Union National Association (CUNA).
Click to view larger image During yesterday's "Power Lunch" in Washington, D.C., from left: Chuck Todd, political director, NBC News; David Morris, executive editor, CongressDaily; Scott Reed, GOP strategist and former campaign manager for Bob Dole's 1996 presidential campaign; Tad Devine, senior advisor to Al Gore (2000) and John Kerry (2004); and president, Devine Mulvey - Media/Message; and Jim Barnes, political correspondent, National Journal. (Photo provided by CUNA)
More than 100 Capitol Hill staffers, news media representatives, political analysts and lobbyists attended the lunchtime event held at Union Station in Washington, D.C. Discussion centered on the Democrat and Republican candidates running for president and the Iowa caucuses and New Hamphire primary results. CUNA Political Affairs Senior Vice President Richard Gose said by participating in Thursday's event, “insiders from Capitol Hill and in the Washington lobbying community will see credit unions actively engaged in the political process."