AT CRISIS TIME, CNVM Bill Would Keep SIF Profit Intact

The management of financial investment firm SIF Moldova announced yesterday that an emergency meeting of the Board of Directors had been called to discuss the potential consequences of the approval by the Ministry of Finance of a draft bill created by the National Securities Commission (CNVM), which would allow SIFs to pass the depreciation of fixed financial assets only through the equity.

If the bill is endorsed, its provisions will complement the accounting regulations stipulated by CNVM Order no. 75/2005, which compels financial investment firms to enter any decrease in the value of listed shares into the profit and loss account, which can lead to a significant decrease in the net profit of such companies. The modification of the CNVM order could leave the profits of the SIFs indact as they would no longer have to create provisions for the depreciation of their stock portfolio.

The SIF2 management"s rush to call a meeting of the Board could be explained by the fact that SIF Moldova has already included their losses from bad stock performance into the profit and loss account and reported a Y2008 net profit of only 1.89 million RON, down by 97% from 2007. Consequently, the management suggested to the shareholders to refrain from allocating dividends.

"It is too early to speak about how the approval of the Ministry of Finance may change the previous announcement of our decision not to disburse dividends," SIF Moldova Vice President Alexandru Matei told BURSA. "We will wait for CNVM"s decision and then we will call immediately a meeting of the Board of Directors to see what we do next," Matei added. The approval of the Ministry of Finance could herald the favourable ending of a three month battle which the SIFs started in order to be able to keep their profit intact at crisis time.

"In the past years, we put the depreciation through the profit and loss account, but this year, the biggest problem we had was the size of the provisions," said SIF Transilvania President Mihai Fercala. "If we had done the same this time, the provisions would have eaten away all our profit or maybe would have forced us to report losses," he added, stressing that such situation would have spread distorted information about the results of the firm. "It would have been difficult to explain to our shareholders why we had not made a profit in 2008, although we had paid millions of lei in profit taxes," Fercala added.

SIF Transilvania announced a preliminary net profit of 94.6 million RON for 2008 and proposed dividends of 0.03 RON/share. SIF Transilvania"s profit was not affected by the inclusion of the stock portfolio depreciation into the profit & loss account, as in SIF Moldova"s case. SIF Oltenia and SIF Banat Crisana were also not affected, posting profits of 86.73 million RON and, respectively, 95.43 million RON.

"Let us suppose that I paid 1 leu for a share last year and now it"s worth half as much, but I don"t sell it. The current regulations stipulate that the depreciation be entered in the profit and loss account, although the share remains in my portfolio," explained SIF Banat Crisana President Ioan Cuzman. "I cannot add to the profit and loss account, which reflects results, an economic operation that never took place," he added.

The announcement of the approval given by the Ministry of Finance did not sit well with SIF Muntenia management, as this firm did register the depreciation into the profit & loss account and, notwithstanding, also posted a significant profit of 91.5 billion RON. "There is no reason to change the profit calculation formula, because we have a fairly large profit," SIF Muntenia President Petre Pavel Szel told BURSA. "The provisions are not actual losses, but can anticipate a certain market trend," he said, adding that "everyone will know what the SIFs profit would have been, if the provisions had been mandatory."

The modification of Order 74 could bring Fondul Proprietatea from the red to the black, shortly after the Fund announced losses of 3.41 billion RON for 2008, following a number of additional adjustments for the devaluation of the fixed financial assets in its portfolio. Under the new circumstances, the Fund could report a net profit of 465.6 million RON for 2008.