Widespread use of the amendment to IAS 39 on reclassification of financial assets

According to a research carried out by Mazars, eleven out of twelve European banks made use of the possibility offered by IAS 39 to reclassify financial assets to the banking book. In doing so, they have avoided losses of €13.5 billion.

European banks have used the amendment to IAS 39 of October 2008, which allows the reclassification of certain financial assets difficult to assess. According to Mazars, a company specialized in audit and legal and tax advice, almost €111 billion were reclassified from the “held for trading” category and €190 billion from the AFS category.

If these reclassifications had not taken place, the fair value change on assets classified as “held for trading” by the banks in our sample would have been negative for more than €10 billion, and for the assets classified as AFS, the negative variation would have been €3.5 billion. However, despite these reclassifications, the total AFS reserves of the banks in our sample fell by more than €65 billion in 2008.

Among these banks, the entities Commerzbank and Dexia account for the lion’s share of the €190 billion of reclassifications from AFS to loans, while the reclassifications from trading are spread across all the banks.

On the other hand, the information published by these banks at the end of 2008 have been reinforced. They have emphasised sensitivity analysis and expositions, often in connection with recommendations of the “Financial Stability Forum”. Besides, they have paid special attention to the information about measures used with regard to Risk Management. However, “broadly speaking, entities neither provide precise qualitative information enough about the decision of fair value, nor about Direction Management for these purposes,” adds Mazars.