GLG News by Accounting, Finance, and Tax Professors (US)

Robert KempProfessorUniversity of Virginia - CC

Value Creation in Banking: The Key Is Information

April 1, 2008

Analysis of:Top Tier Bonanza In Store For Core Banking Vendors | www.finextra.com

1.   Banks create value for shareholders by creating value for customers.  Much of that value to customers is embedded in information systems. 2.   The business of banking evolves quickly, forcing banks to evolve their competitive strategy and resulting advantage.  Information systems are at the heart of this evolution. 3.   The recent challenges of risk management will only accentuate the oversight of regulators, requiring banks to seek better information systems (e.g., more accurate, timely, and integrated information). 4.   As noted by the article, this will create a boom for consultants and providers of information systems.

Robert KempProfessorUniversity of Virginia - CC

Derivatives - More Disclosure Is Always Better for Financial Analysts

March 27, 2008

Analysis of:Statement of Financial Accounting Standards 161 | www.fasb.org

1.  Value is defined by risk.  Risk deals with uncertainty of the future.  How a firm manages risk is a major determinant of its value. 2.  Accounting standards are dedicated to reporting the past.  Given it is the past, there is little risk or uncertainty regarding such events.  Merely reporting the past does not give the financial analyst the insights needed. 3.  FASB 161 tries to bridge this gap between past/present and the future.  It attempts to make management disclose intent.  It attempts to answer the following question: "How will current actions and positions affect future performance?"      

Robert KempProfessorUniversity of Virginia - CC

Understanding the Pros and Cons of Pension Fund Investing - the Issue Applied to Asian Investments

February 26, 2008

Analysis of:Canada Pension Funds Turn to Asia | online.wsj.com

1.    Investing in Asia has three benefits.  First, there are the returns from investing in environments that show greater growth potential than in the West. Second, there are the returns from investing in opportunities denominated in currencies that are forecasted to appreciate. Three, there is the benefit of diversification. 2.     The costs, or risks, of investing in Asia are threefold: First, there is the risk that high growth opportunities present. Second, there is the risk of investing in a depreciating, not appreciating currency. Third, there is the asset-liability risk inherent in all financial intermediaries, particularly pension funds.

Robert KempProfessorUniversity of Virginia - CC

Financial Analysis - The Ultimate Impact of IFRS

December 10, 2007

Analysis of:The Economics of IFRS | www.cfo.com

1.  Countries adopting IFRS are not always adopting the same standards.  If you look closely, the term "as adopted' is being used a lot (e.g., China).  What that means is countries are adopting IFRS in principle, but are differing on interpretation and actual application/practice. 2.  The end result is the need for financial analysts to become more educated and dig deeper into financial statements.  The idea that we will have one set of standards, simplifying analysis, is false.  Analysts must begin to appreciate how each country is "adopting" IFRS.   3.  Accountants must likewise be sensitive to the "as adopted" challenge.  This goes beyond understanding and dealing with different approaches in different countries.  It also deals with investor expectations and the legal structure within and between countries.  Unless accountants grasp changing investor expectations, they will find themselves in a legal nightmare. 

Robert KempProfessorUniversity of Virginia - CC

Pension Pressure Reduced - Good News For Corporate Valuation

November 15, 2007

Analysis of:Out of the Shaows? PBGC Deficit Shrinks by $5 billion. | www.cfo.com

The reduction of the PBGC's deficit reduces pressure on Congress to take action that could impact corporate values.   Such action would most probably hurt corporate value by adversely affecting cash flow and risk.

Thomas KleinManaging MemberKleinCPA PLLC

Investors Punish GM Stock, in Part on Large Deferred Tax Adjustment.

November 7, 2007

Analysis of:GM Posts Huge Loss | online.wsj.com

Investors fled General Motors following the release of its Q3 results.  The reported loss for the quarter was $38.96 billion of which 99% of the loss ($38.6 billion) resulted from the write-down of deferred tax assets.  Have investors overreacted to the noncash charge or is the decline in market value justified?

Robert KempProfessorUniversity of Virginia - CC

Financial Analysts Beware: The Rules of Pensions Are Always Changing

October 31, 2007

Analysis of:PBGC sets new pnsion benefit limit for 2008 | money.cnn.com

1)  The PBGC increasing the amount of insured benefits for qualified, defined benefit plans is a normal, annual event. 2)  Ignoring the impact of this increase on firm valuation can be problematic. 3)  Financial analysts, following mature and declining industries and firms, must pay particular attention to this increase due to solvency and liquidation issues. 

Robert KempProfessorUniversity of Virginia - CC

Beware the Cost of Pension Possibilities

September 26, 2007

Analysis of:Democrats to Push Bill to Protect Workers | online.wsj.com

Unfunded pension and OPEB benefits (e.g., Other Post Retirement Benefits - health care) have little or no priority of claims in bankruptcy, in relationship to other forms of debt.  As political currents change, the possibility of radically changing this situation also changes.  (See source article.)  If pension and OPEB liabilities gain higher priority in bankruptcy, the imbedded risk in other forms of debt will increase.  This increase in risk will ultimately force higher required rates of return and thus lower values. Financial analysts need to be aware of this when pricing such debt and related equity.  

Robert KempProfessorUniversity of Virginia - CC

Pensions and OPEB - Make Sure You Know "All" The Risks

September 13, 2007

Analysis of:Pension Investment Risk Disclosure - What You Don't Know | news.glgroup.com

Dr. Mangieor's analysis is insightful and correct. Investors need better pension/OPEB disclosures regarding risks. However all the risk within a pension scheme must be recognized, understood, and managed. Too many times the risk within a pension/OPEB scheme is viewed as having a single dimension: default and market risk. This is problematic.

Robert KempProfessorUniversity of Virginia - CC

The Auto Industry - It's Simple Risk and Return Regarding Health Care Issues

September 13, 2007

Analysis of:UAW Talks Get Push | online.wsj.com

US auto manufacturers face a huge dilemma.  To be competitive with Toyota and other non-US auto manufacturers, they must lower health care costs and unfunded liabilities.  (This is well documented in the referenced article.)  What is interesting is the impact on value from both the the firms' perspective and the UAW's perspective.

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