SEC and FASB to clear hurdle for Treasury cash infusion
WASHINGTON (Reuters) - Regulators will remove an accounting barrier that would clear the way for the government to inject billions of dollars into the banking system, according to a draft letter reviewed by Reuters on Tuesday.
The U.S. government is planning to inject $250 billion of capital into banks such as Bank of America Corp (BAC.N) and Goldman Sachs (GS.N) in exchange for preferred shares and warrants under a program designed to restore confidence in the credit markets and financial system.
However, banks' balance sheets may not get the full effect of the capital infusion if warrants are treated as liabilities under U.S. Generally Accepted Accounting Principles (GAAP).
The letter from the U.S. Securities and Exchange Commission and the Financial Accounting Standards Board (FASB) says banks participating in the Treasury Department program will be allowed to classify warrants as permanent equity in certain circumstances.
"We would not object if the warrants... were to be classified as permanent equity under existing U.S. GAAP," said the letter signed by the SEC's Deputy Chief Accountant James Kroeker and FASB Technical Director Russell Golden.
The SEC and FASB will not object provided that the issuer of such warrants has sufficient authorized but unissued shares of the class of stock that may be required upon settlement and any other necessary shareholder approvals have been obtained, the letter said.
The draft letter was sent to Treasury late last week. The SEC and FASB action was determined after they analyzed the terms and conditions of warrants described in the Treasury's program known as the Troubled Asset Relief Program.
(Reporting by Rachelle Younglai, editing by Leslie Gevirtz)
