@Tarvold, I hope you didn't read my post as suggesting also that the result isn't valid. I haven't done any in depth analysis on the current year result, yet. I have in the past and have found cash collections to vintage profiles appeared to generally support the carrying amounts and in that respect haven't, in my opinion, observed much untoward. That said, the sensitivity to small changes in assumptions when applied to long term liquidation profiles means small changes can have large relative earnings impacts.
Back to my observation on JCOPEs comments (albeit as pointed out the individual only has appeared to post on this one ticker). While with reference to AASB9, which Pioneer hasn't adopted and based on disclosures likely won't take an amortised cost approach under that standard, please note:
- For financial assets that were credit- impaired on purchase or origination, in subsequent periods an entity is required to recognise:
- The cumulative change in lifetime ECLs since initial recognition as a loss allowance
- in profit or loss, the amount of change in lifetime ECL as an impairment gain or loss. An impairment gain is recognised if favourable changes result in lifetime ECLs estimate becoming lower than the original estimate that was incorporated in the estimated cash flows on initial recognition when calculating the credit adjusted EIR.
* extract courtesy of EY on AASB 9
Basically what this means is when acquired at 15c in the dollar there is a big lifetime ECL is included in the original recognition. If circumstances improve (e.g. customer starts paying when they were in default at acquisition) then a gain will be recorded. While PNC are fair value, one can see clearly that the same future estimation will bring to account a gain under amortised cost based on working the book. The only difference is the EIR that doesn't change in amortised and is used to discount the changing cash flows vs a changing discount rate when applying a dcf in fair value.
PNCs current disclosure I don't even agree with as it suggests if they were to apply amortised cost (they disclose what they might have to do with this sort of accounting approach as well as what they actually do) they wouldn't take the carrying value above the original cost amortised. I would suggest differently. That aside I hope the above points out why a discussion on accounting policy isn't helpful. A conversation on cash collections with reference to when the related debt was acquired and liquidation profiles is very useful. on that note PNC appear to have performed well in the past and I'm yet to analyse current results.
(20min delay)
