SEC allows change that may delay bank writedowns

NEW YORK/WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission has agreed to a request from banks that could allow them to delay writedowns on certain securities that have dropped in value due to the credit crisis.

In a letter late on Tuesday, the chief accountant of the SEC told Financial Accounting Standards Board (FASB) Chairman Robert Herz, that banks, at least temporarily, could treat so-called perpetual preferred securities more like debt securities when assessing them for impairments.

In explaining the decision, SEC Chief Accountant Conrad Hewitt said such securities were "hybrid" securities with equity and debt-like characteristics that presented a particular challenge to banks.

In the letter, Hewitt said the SEC "would not object" to banks treating perpetual preferred securities as debt until FASB provides clearer guidance on how to address impairment charges for these securities.

A FASB spokesman was not immediately available to comment.

In a letter earlier this week, the American Bankers Association had asked the SEC to address issues with other-than-temporary impairment charges that were making it difficult for banks to value such securities. The banking industry organization had said in another letter last month that perpetual preferred securities should be counted as debt.

Perpetual preferred securities are rated similar to debt, and are priced like other types of long-term bonds, but because the investor cannot redeem them in the way they can redeem debt, they have been considered to be more like stock.

Treating them as debt would allow banks to avoid having to write down paper-losses as they would have to do for equity.

"This is an important clarification, but even more important is the SEC's commitment to reassess other-than-temporary impairment," said Donna Fisher, ABA's director of tax and accounting. Fisher said the rules need a lot of work.

SEC staff consulted with FASB staff prior to the issue off the letter.

Goldman Sachs Group Inc (GS.N) issued $5 billion worth of perpetual preferred stock to Warren Buffett's Berkshire Hathaway Inc (BRKa.N) last month.

Banks and lawmakers have been urging the SEC to amend fair value accounting, which has been blamed for forcing banks to take large write downs.

Fair value requires firms to value assets based on what they could fetch in a current market transaction.

Investors, auditors and accountants opposed relaxing fair value, saying it would further undermine investor confidence in the financial system.

(Reporting by Emily Chasan and Rachelle Younglai; Editing by Tim Dobbyn)