Implications
Deutsche Bank posted a profit in the third quarter of 2008, but only after adopting EU accounting rules (avoiding a loss by making so-called “mark-to-market” valuations of its investments) that allowed it to apply a new method of valuing its assets. Deutsche Bank senior executives will not be paid bonuses this year and shareholders have been warned that future dividend payouts will be affected by falling profitability this year and next.
Analysis
Obviously Deutsche Bank is not alone in the Global 2008 "Financial Meltdown" effects.
However, it is interesting to note that if EU accounting rules regulators are relaxing so-called “mark-to-market” valuations, investors in the US and elsewhere need to be aware.
Early on in this decade, Deutsche Bank agreed to buy Scudder Investments in a deal worth $2.5 Billion. Zurich Financial explored strategic options, including a sale of some businesses, to help reduce its debt. The asset pool of Scudder Investments, with offices in New York and Boston, has shrunk amid a shuffling in which some of its managers defected to competitors.
This deal provided Deutsche Bank with substantial US assets. Since global enterprises are holding global assets, we MUST (as an investor class) have a definitive metric to evaluate WHICH accounting method will be used to value WHICH assets based WHERE. Otherwise, we will have the proverbial "apples-to-oranges" valuation which basically does nothing to invoke investor trust.
Trust is an essential ingredient for investor confidence to assume risk. Firms such as The Association for Investment Management and Research (AIMR) must be looked to for standardization and transparency of methods used.
