Banks Split over Plan to End Poolings of Interest

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By TANIA PADGETT Some of the nation's biggest banks have weighed in against a proposed rule that would bar the use of the industry's favored method of accounting for mergers. A few smaller ones are in favor of a rule that would eliminate the endangered pooling of interest approach. Chase Manhattan Corp., J.P. Morgan & Co., Citigroup Inc., and Bank One Corp. have submitted letters to the Financial Accounting Standards Board, opposing its proposal to ban poolings. The proposal is due for release this summer. "We believe the elimination of pooling and required purchase accounting with goodwill amortization will have a negative impact on U.S. corporations," said Chase executive vice president and controller Joseph L. Sclasani in a Feb. 17 letter to the board. "Numerous merger transactions which make economic sense may not occur, simply because of the adverse accounting treatment which would result." Other opponents of the change warned that it would eliminate the merger premium that has lifted many banks' stock price. But some smaller banks agree with the accounting board that the change is needed to make earnings reports clearer, and argue that the change would level the playing field among acquirers. Pooling, which enables combining companies to state assets as if they are one,

has facilitated the greatest merger boom in banking history. Its alternative is purchase accounting, which many companies do not use because it requires them to amortize goodwill-an intangible asset representing the price of an acquisition-which suppresses earnings. FASB's proposal-entitled "Recommendations for Achieving Convergence on the Methods of Accounting for Business Combinations" - is widely expected to take effect as early as Jan. 1, and to be retroactive to the day it is released. The accounting board, in conjunction with accounting organizations from Canada, the United Kingdom, Australia, and New Zealand, invited companies to comment on the elimination of poolings. So far the U.S. standards board has received 131 responses, 17 from banks. "Eliminating pooling of interest accounting would be a particular bad idea for the banking industry," said bank analyst Peyton Green of Sterne, Agee & Leach in Birmingham, Ala., who urged clients to write their accountants and FASB on the matter. "FASB wants to eliminate poolings in order to conform accounting standards to those of other countries, but foreign financial disclosure standards lack transparency or visibility," Mr. …