As expected, in December outstanding ABCP showed its largest volume gain of the year, climbing more than $12 billion to $726 billion, still almost $20 billion shy of the market's $745 billion peak in December 2001.

Historically, December tends to be the market's most active month due to balance sheet cleansing, although 2002's December spike was somewhat muted compared to past years.

Most ABCP participants attribute a large part of the market's slowing to accounting uncertainty related to the Financial Accounting Standards Board's consolidation project.

In an "action alert" last week, FASB said it would hold an open board meeting this Wednesday for an estimated 30 minutes to discuss an issue that has arisen with regard to the current draft, which only a select group of industry participants received for commentary in mid-December. The issue concerned "[T]he effect on earnings of initial measurement of assets, liabilities and noncontrolling interests of a newly consolidated variable interest entity except at transition."

FASB added that it expects to issue Interpretation No. 46 (the current draft) following the meeting. The release of the final interpretation, and subsequent implementation, was initially expected in December, and some market sources believe the final release will be pushed further back.

Let Wednesday reveal the truth...

According to Sam Pilcer, head of ABCP at Moody's Investors Service, there is still activity in the market, though no new programs are expected to close this month. While the pending changes could require multi-seller conduits to be consolidated onto the sponsoring bank's balance sheet, the delay in a final interpretation and the changes in language from draft to draft (and deliberation to redeliberation) are almost more hindering to the market than whatever decisions FASB arrives at.

"I can tell you this much," said Pilcer, "if FASB doesn't come out with something in time for these conferences, there's not going to be anything to talk about at the ABCP panels. It will be nothing but repetition."

On the Senate's hit list

Separately, on Jan. 2 the U.S. Senate Permanent Subcommittee on Investigations, which continues to delve into matters related to Enron Corp. the implosion that started it all released a report detailing four structured finance transactions Enron used to camouflage debt and manipulate its balance sheet.

Last Monday, researchers at Nomura Securities released an opinion piece on the subcommittee's report, stating, "One effect of the report may be a further challenge to the accounting treatment of certain mainstream financial activities, such as asset-backed commercial paper programs and credit card securitizations. We do not expect the report to generate heightened scrutiny of mortgage or auto securitizations."

The subcommittee addresses issues such as SFAS 140 (commonly referred to as FAS 140) and FASB's consolidation project. Nomura comments that the report places "additional pressure on FASB to take a hard-line position in its present deliberations."

In a footnote referring to a deal called "Fishtail," the committee writes, "Enron's reliance on SFAS 140 in this transaction is documented, for example, in a Citigroup draft analysis of the transaction, Capital Markets Approval Committee: Enron Corp. Project Bacchus FAS 125 Transaction' ... Enron engaged in numerous transactions under SFAS 140 and its predecessor SFAS 125, collectively involving more than $1 billion."

In another description, the committee writes, "Enron analogized that, in an SFAS 140 transaction, it could sell its Fishtail interests to an SPE, while continuing to exercise control over its pulp and paper trading business even after the sale."

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