Magazine article American Banker

Service Helps Banks Value Thinly Traded Stocks

Magazine article American Banker

Service Helps Banks Value Thinly Traded Stocks

Article excerpt

A small Maryland company is selling to banks a service designed to help them value thinly traded securities held in their customers' accounts.

Securities Pricing and Research, Annapolis, uses the financial records of publicly traded companies as a yardstick.

Trusts, employee benefit plans, and even individual retirement accounts at banks often include shares of closely held companies or limited partnerships. The prices of these shares cannot be found in the newspaper.

But Securities Pricing officials say they must be valued nonetheless. Indeed, the Internal Revenue Service and other regulators require bankers to accurately price these securities each year.

"Just because something doesn't trade doesn't mean it's valueless," said Brad Davidson, founder and president of Securities Pricing. "It just doesn't have liquidity."

Full taxation of distributions, proper calculation of trust fees, and compliance with Internal Revenue Service rules for retirement plans all hinge on accurate valuation of assets, even if those assets are seldom traded.

"Banks are required by law to do it, and we're required to check on it," said an IRS official who asked not to be named. "The valuation is quite important when you start getting distributions. Taxability is our biggest interest."

That's because failing to fully value a security in tax documents, the most common error, would reduce the IRS' take when a distribution is made.

For $200, Securities Pricing will document the value of a non- or seldom-traded security. …

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