COMPARING APPLES AND ORANGES Each SIF reports its performance differently

The five financial investment companies (SIFs) have announced that they would record the share capital increase performed by BCR differently, taking advantage of the fact that the current legislation allows them to set their own accounting policies.

Simply recording the share capital increase will increase the first semester revenues of SIF "Banat-Crişana" and SIF "Oltenia" by approximately 14 million lei, whereas SIF "Muntenia", SIF "Moldova" and SIF "Transilvania" announced that they would record the share capital increase under "reserves".

The consequences of such decisions can not be ignored, as it becomes difficult for investors to get a clear picture of the profitability of the SIFs and to make informed investment decisions.

Contacted by BURSA, the heads of the SIFs defend their points of view, saying that the responsibility to solve this situation rests with the Ministry of Finance and the Romanian National Securities Commission (CNVM).

"If we were to record the share capital increase of BCR as revenue, this would inaccurately increase our profit and present a misleading image", said for BURSA, Mihai Fercală, the president of SIF "Transilvania", who added: "It all depends on the individual interests of each SIF. Normally, the Romanian National Securities Commission, the Ministry of Public Finance, and the FICs should adopt a common position. If no one wants to clarify this situation, that"s it ... there"s nothing we can do about it".

Tudor Ciurezu, the vice-president of SIF "Oltenia" admits that the different ways of recording the share capital increase of BCR distort the financial results of the five FICs.

The vice-president of SIF5 says that he himself warned that the apparent increase in revenue creates the danger of shareholders in the FICs demanding big dividends next year, and that it would be difficult to explain to them the true state of things. However, this did not prevent the management of SIF5 from announcing that the share capital increase performed by BCR would be recorded under "revenues".

"We will need to explain to our shareholders that this is not a true profit, but rather potential profit. One year ago, we sent a petition to the Ministry of Finance in order to clarify this situation, but we got no answer", said Tudor Ciurezu.

Out of the five FICs, SIF 2 "Moldova" has stepped up its efforts to determine the authorities to impose a unified accounting policy for the FICs. The request of SIF "Moldova" comes as by the end of the current month, all the five FICs need to have their semi-annual statements ready.

"We must be transparent to our shareholders and present them with an accurate picture of the revenues of the SIFs. If each SIF reports its earnings differently, can they still be compared? The SIFs were intended to be similar, and subjected to the same regulations, so why do we now have different accounting policies?", Costel Ceocea, the chairman of SIF "Moldova", asks rhetorically.

The temptation of the managers of the SIFs to choose accounting policies that would maximize their profits is even greater now that the economic crisis has impacted their earnings. At the same time, their managers are under a huge pressure to post profits, especially as there has been a heavy debate concerning the raising of the holding threshold in the FICs and the performance of their current managers.

In the General Shareholders" Meeting held at the end of April, the shareholders of BCR have decided to increase the bank"s share capital using its profits for the year 2009, by increasing the face value of the shares of the bank. This has increased the value of the stakes of the five FICs in BCR by 14 million lei on average.