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Major Companies Counting Unrealized Venture Capital Investments To Boost Their Earnings
Chase Manhattan Corp., Conseco, Axa Financial and Mony Group are reporting much stronger financial results as a result of including unrealized gains on securities positions. This is aggressive accounting, and well beyond what Microsoft, Intel, General Electric and others have done that for years, which is to include gains if realized.
Worse still is the fact that the investments themselves may be illiquid or subject to significant price swings. Most analysts have not been fooled. But retail investors may not be so smart.
All four companies are following the advice of their accounting firm (Price Waterhouse Cooper), which the SEC is investigating because the firms' partners have owned stocks in the companies that the firm audits.
Notably, but for counting the unrealized gains, the financial results of the four companies would be mediocre at best. For example, more that 1/2 of Conseco's operating profit (34 cents per share) came from paper gains in one hot telecommunications stock. At Chase Manhattan, 44% of its operating income, or $2.5 billion, came from private equity gains, and $1.3 billion of that was from unrealized gains.
Source: Investment News, March 13, 2000
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