EU watchdog calls for debt transparency at banks
By Huw Jones
LONDON (Reuters) - Banks in the European Union should spell out clearly their exposures to sovereign debt in their upcoming quarterly earnings reports, the bloc's markets watchdog said on Thursday.
The European Securities and Markets Authority (ESMA) said it had increased coordination of monitoring activities among national supervisors in response to increased market interest in sovereign debt.
"Consequently, ESMA would like to stress the need for enhanced transparency in European listed issuers' interim and annual financial statements using International Financial Reporting Standards," ESMA said in a statement.
"ESMA underlines that an appropriate application of relevant IFRS is essential in order to ensure adequate disclosures by listed companies of their exposures to sovereign debt and related instruments," it added.
"ESMA considers that, when material, disclosures should be provided country by country."
Euro zone leaders agreed a second bailout for Greece last week which involves a contribution from banks that hold Greek sovereign debt which would effectively result in them taking a 21 percent "haircut" on the debt.
Deutsche Bank reported a 155 million-euro impairment in its Greek debt holdings in second-quarter results this week.
More banks with some of the largest exposures to Greek debt outside the local banking system report next week, including Societe Generale and BNP Paribas of France who hold 2.65 billion euros and 5 billion euros respectively.
French Finance Minister Francois Baroin said on Thursday that French banks will propose to their boards that all 15 billion euros of their exposure to Greece maturing before 2020 be used in the private sector contribution to a Greek bailout.
Dexia of Belgium, UniCredit of Italy and Britain's HSBC and Barclays also report in the coming days.
The ESMA statement was welcomed by some accounting industry officials who noted it lists the different accounting rules banks should comply with in their filings, making it harder for lenders to fudge the issue.
"ESMA will continue to coordinate competent authorities' monitoring of the application of the relevant requirements by listed issuers with respect to sovereign debt exposures in order to ensure an adequate level of transparency," the Paris-based watchdog said.
Banks are under pressure in any case to come clean on sovereign debt hits, especially after a pan-EU stress test of lenders listed their holdings in Greek and other troubled sovereign debt earlier this month.
The cut-off point for valuing assets is June 30 for second-quarter results under the IFRS accounting rules that are mandatory in the EU for listed companies.
At that time markets were factoring in a 50 percent haircut on Greek bonds. Last week's deal by euro zone leaders for a second bailout for Greece indicated the 21 percent haircut.
(Reporting by Huw Jones; Editing by Will Waterman, Greg Mahlich)