The knee-jerk response to the new guidance on fair value rules has been that banks will see a significant bump in earnings, as mark-to-market losses lessen. But in the view of a TheStreet.com ratings analyst, that might not be the case with Citigroup. The argument starts with the fact that as of the end of 2008, Citigroup had mortgage-backed securities classified as available-for-sale and held-to-maturity with an amortized cost of $70.5 billion with a fair value of $57.6 billion, which represents a write-down in value of $12.9 billion.

Much of these losses are not recorded on the income statement as "nearly all of the riskiest assets as held-to-maturity, avoiding the need to deduct the unrealized losses from these securities in comprehensive income." Would the new guidance change anything? It may be that the bank has already taken other means to get to the desired end--higher valuations. "The recent relaxation of mark-to-market accounting, announced last week, will do little to aid Citigroup, as the bank has already accounted for losses in a manner that the new interpretation allows."

For more:
- here's the analysis

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