NEW YORK, Nov.16 (Business Law Currents) - Off balance sheet items and undisclosed liabilities are coming back to bite companies, as repo-to-maturity disclosures prove to be a jarring reminder of pre-crisis risk proclivity.
Symptomatic of a wider problem gripping U.S. banks, MF Global’s bankruptcy has drawn attention to the danger of financial services firms hiding their true liabilities, no matter how safe they think they are.
The revelation that MF Global’s off balance sheet leveraged repo-to-maturity play was stuffed full of toxic Eurozone debt proved to be its downfall. The prospect of a Eurozone default spooked markets and MF Global’s liquidity drained away. A review of U.S. banks’ SEC disclosures reveals, however, some troubling implications of the gaps in U.S. GAAP filings as the true nature of hidden debt exposure becomes apparent. (more…)