In the weeks preceding Wednesday's decision by the Financial Accounting Standards Board to postpone changes to accounting rules for securitizations, attention tended to focus on the changes' ramifications for Fannie Mae and Freddie Mac.


But observers say the changes, if and when they are adopted, could have more of an impact on credit card businesses than they would on mortgage operations.


The changes being contemplated by FASB could lead financial institutions that securitize loans to take billions of dollars of assets back onto their balance sheets. The rulemaking body said a narrowing window to complete the process under the existing timetable was among the reasons for the delay.


At a meeting to consider the schedule, Robert Herz, FASB's chairman, made it clear he supported the delay reluctantly. "It does pain me to allow something that basically has been treated or abused by certain folks, to let that go on another year," he said.


At issue is whether many off-balance-sheet transactions represented a true severance of risk from the assets involved, particularly when securitizers retain a role in managing the vehicles' collateral.

This involves "entities that in my view have been actively managed that should not have been characterized as Q's," or qualifying special-purpose entities, Herz said. "In certain cases they have to be actively managed when problems happen to the underlying collateral."


David Morris, an accounting consultant and former controller at JPMorgan Chase & Co., said that, "until we see a final standard, it's impossible to say what" the impact of new rules would actually be. But the movement of balances in and out of a credit card trust implies "more control" over the securitization in the eyes of rulemakers, he said.


"There are more unique bells and whistles and nuances in credit card securitizations than mortgage securitizations," he said, largely because of the more uneven balance and payment patterns of revolving debt.


This month, Citigroup's chief financial officer, Gary Crittenden, said that it anticipated the largest impact from the rule change "is likely to be in the credit card area. That will have an impact on our Tier 1 capital."


However, he said, "it will probably happen over time as the full implementation of that rule is not likely to happen for a while."


Also this month, Washington Mutual CFO Thomas Casey said, "While the timing of credit cards coming back on the balance sheet is unclear, we are considering the implications as part of our long-term capital planning."


And JPMorgan Chase's chief executive James Dimon, in playing down the rule's potential effects, said it might apply to the company's roughly $67.5 billion of off-balance-sheet credit card assets and perhaps reduce the company's Tier 1 capital ratio by 50 basis points. "Who cares?" Dimon said. "It's another number on a piece of paper, and we've got plenty of ways to raise capital."


A July 7 Lehman Brothers research note saying that the accounting changes could force Fannie and Freddie to raise tens of billions of dollars in capital helped fuel a stunning collapse in the shares of the two GSEs.


The note said such an outcome was unlikely, and James Lockhart, the director of the Office of Federal Housing Enterprise Oversight, quickly reassured the markets on CNBC that "an accounting change should not drive a capital change." Nevertheless, fears about the GSEs' fundamental health mounted, leading to a federal rescue plan that was signed into law Wednesday.


Under the schedule set by the FASB last month, proposed changes for new securitizations were to take effect next year, and changes addressing certain existing off-balance-sheet vehicles were to take effect in 2010. On Wednesday, the FASB accepted the recommendation of its staff to change the effective date for both sets of changes to the beginning of 2010.


Jamie Mayer, a member of the FASB staff, said it had consulted with federal banking regulators and OFHEO and was "concerned about whether the tentative effective dates will permit those regulators with adequate time to consider the impact of the amendments on capital requirements."


Last week, Rep. Spencer Bachus, the ranking Republican on the House Financial Services Committee, wrote to FASB and the Securities and Exchange Commission expressing concern over the rulemaking timetable. "With capital and liquidity at a premium, the effect of these changes could be to prolong market dislocation," he wrote.


Herz said he was "kind of chagrined by what we discovered through a lot of" discussions with market participants and other interested parties.


"It seems apparent to me … that the kind of reporting that was made by a number of preparers, particularly certain large financial institutions, did not live up to the needs and desires of the investment community," he said. "You have to ask … [to] what extent is that based on standards and what extent is it based on lack of faithful application … . My own conclusion is that it's a little of a combination of both." Though the FASB has acknowledged that the rules "could be improved, it's also fairly clear to me that in particular the notion of" a qualifying special-purpose entity "was stretched beyond recognition in … a number of instances."

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