Corporate Governance

SEC Demanding More Disclosure on Subprime Losses

By Fei-Lu Qian

As financial companies have taken $76 billion in losses and write-downs due to the collapse of the subprime market, the SEC wants companies to fully disclose those losses in their next annual reports. Yesterday, the SEC sent letters to more than two dozen companies including banks, securities firms and insurance companies that have already disclosed their involvements in off balance sheet entities such as collateralized debt obligations, conduits, and structured investment vehicles.

In the letter, the SEC suggests that companies discuss the disclosure issues related to those entities in the ?Management?s Discussion and Analysis? section. Specifically, in order to satisfy Item 303(a)(4) of Regulation S-K off-balance sheet arrangements disclosure requirement, the SEC wants companies to disclose the items for any non-consolidated entities where they have material exposure including ?any material difficulties the off-balance sheet entity has experienced in issuing its commercial paper? and ?any material write-downs or downgrades of assets the off-balance sheet entity holds.? In addition, the SEC requests companies to discuss any scenarios where they ?would have to consolidate the off-balance sheet entity.?

Full post as published by PomTalk on December 12, 2007 (boomark / email).