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December 4, 2014

Tweedie is back in business warning about ‘the valuation gap’ in financial services

The lack of a single set of global standards to value financial instruments could make Basel capital requirements useless, disguise the real value of complex financial products and eventually reignite another financial crisis, Sir David Tweedie tells Carlos Martin Tornero


On 5 June 2008 the BBC Radio 4 programme In Business led with a show devoted to the role of accounting in the financial crisis. Veteran journalist Peter Day kicked off with a dramatic and striking intro: "People are pointing their fingers at Sir David Tweedie; there’s a bit of a whispering campaign. As banks stare into the credit crunch abyss, the whispers say, he may have made it worse."

Day continued with a crescendo: "Sir David is getting some of the blame. Sir David Tweedie is an accountant, perhaps the most powerful accountant in the world, and this programme is all about accounting, and what he’s doing to it, because Sir David is Mr or Sir, bottom line."

In Rome at the World Congress of Accountants (WCOA) Tweedie, now chairman of the International Valuation Standards Council (IVSC), participated in one of the sessions which looked at the crossroads between the worlds of accounting and valuation, a potential spin-off profession branching out from the accountancy tree.

During that session Tweedie referred to that BBC interview and shared with the audience his recollection of events: "Yes, you are right. That’s me. I made the banks give up the risk measurement. I made them give mortgages to people with no assets and no income."

He continued with his confession: "I made them take those mortgages and break them to tiny bits, add them to thousands of tiny bits from others and scatter them worldwide. I made credit rating agencies give banks AAA ratings. I made people buy them without due diligence, without a clue of what was inside them…It’s my entire fault."

As he recalled there was a silence, after which the BBC presenter asked: "You’re being ironic here?" Indeed, Tweedie was being as ironic and hyperbolic back then, as he was during some of his interventions at the WCOA.

In conversation with The Accountant at the WCOA, he acknowledges: "Looking back, as chairman of the IASB, I probably naively assumed that there were people out there, a sort of profession that did those valuations, all getting the same results. I remember saying, ‘well, the valuation professional would deal with this’. Then I just realised that there wasn’t one and the IASB and FASB had to deal with it."

Read the full conversation here: Tweedie and the valuation void: is another financial crisis looming?

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