The phone calls started in September, as the sub-prime mortgage crisis was making headlines, reports Louis Hacaj, one of EDGAR Online’s in-house analysts. The financial world wants to know: How much more bad debt is out there, how do we find it, and how do we value it?
“A wave of our new I-Metrix subscribers, including researchers, paralegals, and journalists have called specifically to mine our SEC filings database for information on ’structured investment vehicles’”, says Hacaj “and other terms associated with the current sub prime mortgage crisis.”
Word was getting out, one caller told Hacaj, that the EDGAR Online search tools were very effective at finding and organizing information deep inside company reports.
“A subscriber also brought it to my attention that since September 1, a far greater number of SEC filings include these terms.” says Hacaj. Running some quick searches on his own (shown below) Hacaj confirmed that many more companies, particularly large ones, are clearly labeling their structured investment vehicles. He also discovered that the most popular search terms for our subscribers this last month included “structured investment vehicle” (SIV) and “conduit”, as well as “collateralized debt obligation” (CDO) and “asset-based securities.”
It certainly is in a bank’s best interest to fully disclose these risky asset-backed securities. Given the increased use of clearer labels, we may be seeing a rush to demonstrate transparency to investors-and to the SEC-sooner rather than later and before the annual report is due.
Legally, these assets must be disclosed, so more careful attention is now being given to past company filings and original disclosures, and the manner in which they were reported. “One problem,” says Hacaj, “is that the information is not necessarily the kind of fundamental financial data that shows up in income statements or balance sheets.” However, now that many of these off-balance sheet items have fallen in value, banks have to list them as liabilities, which are reflected in fundamental data disclosures.
Searching through older filings can be difficult, explains Hacaj, because the terms used to describe these assets are often not easily understood and disclosures are often scattered throughout a document. Also, a document may refer to another document, which may be filed only in paper format, which is not accessible in the SEC’s EDGAR database.
“But whether the disclosure is paper or electronic, there is a trail and our search tools are far more effective than the SEC’s in locating documents and data,” says Louis.
A search (shown below) on the phrase “structured investment vehicles” shows 102 SEC filings in the past three months that contain that phrase: over twice the number in the three months prior to September 1.
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