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Banks Say Proposal Will Change Lawsuit "Battlefield"

An accounting rule change could force banks to disclose much more detailed information about their potential exposure to lawsuits.



) -- With more plaintiffs circling every day, big banks are scoffing at an accounting proposal that would force them to spell out the cost of being sued on financial disclosure forms.


The firm believes that the

accounting change proposes to make more fundamental changes, which may result in the disclosure of confidential, privileged and sensitive information," said Louis Rauchenberger, managing director and corporate controller for JPMorgan Chase

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in a letter sent to the

Financial Accounting Standards Board

FASB last week.

At issue is a proposed change to accounting rules that would require a company facing a lawsuit to give a dollar estimate regarding possible losses -- for both attorneys fees and potential judgments -- within their financial statements. Currently, companies disclose possible "loss contingencies" but are not required to estimate possible losses in detail.

FASB issued the proposal on July 20 as part of an exposure draft.

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For many banks the thought of disclosing possible lawsuit costs and updating them continually in financial statements is practically impossible.

"Such information would be highly prejudicial to reporting entities and, in the case of ongoing litigation and negotiations with third parties, could negatively affect the outcome," Rauchenberger argued in his letter to FASB.

Richard Levy, executive vice president and controller for Wells Fargo

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, added that if the rules were adopted as proposed the industry would be put in a permanent disadvantage. "In the interest of benefiting users, the proposal tilts the litigation battlefield dramatically to the benefit of plaintiffs," he said in his comment letter regarding the change.

Much is at stake for the financial services industry, which is facing billions in investor and shareholder lawsuits following the financial collapse in 2008. According to consulting firm Marsh FINPRO, 206 lawsuits related to the credit crisis were filed between January 2007 and November 2009.

Besides arguing against the merits of the proposal, banks have had little time to consider its ramifications, given the amount of new rules imposed on the industry recently, said Brad Kimbrough, executive vice president and chief accounting officer for Regions Financial


in Birmingham, Ala. "As in other recent cases, we are concerned that the speed of rulemaking is prohibiting appropriate due process," his letter to FASB stated.

A final decision on the proposal, or the possibility of extending its consideration, is expected shortly.


Written by Christopher Westfall in New York.