Fisher lambasts US companies for hiding off-balance-sheet exposures

US undersecretary of the treasury Peter Fisher today launched an attack on companies that choose to use derivatives as a means of hiding total economic leverage from shareholders and creditors.

Speaking to delegates at the US Securities Industry Association in Florida, Fisher said that restoring the vitality of the US securities market is dependent upon improving the quality of information that investors receive.

“Let me be clear. There are lots of legitimate purposes for derivative instruments, structured finance and special-purpose vehicles as a means of transferring and pooling risk. But hiding a firm's total economic leverage from its shareholders and its creditors is not one of them,” Fisher said. “Investors should not tolerate this practice. Indeed, the low price/earning ratios of some of our leading companies, today, reflect the markets' intolerance for even the suspicion of hidden, off-balance-sheet leverage.”

Investors should be privy to the company's real asset/liability ratio - the fundamental financial information about all the company's contractually obligated assets and liabilities, whether on or off balance sheet, Fisher continued.

“The best businesses in America have already found ways to provide their shareholders and creditors with a clearer picture of the business and financial reality of their operations," Fisher added. "These firms are the ones that we have not been reading about in recent months and whose credit spreads have narrowed rather than widened.”