Investment banks in Europe, including JPMorgan, Barclays Capital, Royal Bank of Scotland and ABN AMRO are intensifying their efforts to convince corporates that time is running out to prepare for a new accounting standard that will require them to mark derivatives positions to market. Although the International Accounting Standard 39 doesn't go into effect until 2005, bankers say compliance will require time-consuming wholesale changes in accounting procedures that will have to be in place by the end of next year. "A lot of these companies are just waking up," said Scott Wacker, global head of corporate distribution at ABN in Amsterdam.
Under IAS 39, which applies to companies listed on European stock exchanges, corporates will need to provide comparable numbers on their balance sheet for 2005--meaning they will need to provide 2004 numbers alongside those for the following year.
Among corporates getting to grips with the new rules is BAA, the owner and operator of seven U.K. airports, which has GBP1.9 billion in revenue. Wan Chow, treasury manager in London, said any transaction the company enters now may need to be treated under the new accounting standard because of the requirement for comparable figures.
ABN, which started discussing IAS 39 with clients earlier this year, has planned a number of seminars in which it hopes to educate corporate clients about the new rule and likely will devote additional staff to this effort next year, Wacker noted. RBS is considering running additional seminars for its U.K. clients following a joint seminar with Deloitte & Touche last week which 70-80 U.K. clients attended, according to Nick Marshall, head of U.K. corporates derivatives marketing at RBS in London.
However, one potential pitfall facing banks pitching products and services to corporates is the thorny issue of cost. The corporate treasurer at a U.K. energy company said he could not justify spending money on a product that would simply change an accounting procedure because it provides no economic value to shareholders. As a result he expects the company to go it alone.
