French follow suit on IAS 39

French banks that had previously not reclassified debts and assets under the revised International Accounting Standards (IAS) rules have finally followed the examples of their competitors elsewhere in Europe.

As BNP Paribas, Credit Agricole and Societe Generale posted their 2008 Q4 results in February 2009 it came to light that all three of France's largest banks cleaned up their balance sheets by transferring assets.

In Money Management revealed that banks across Europe transferred £169bn of assets on their balance sheets in order to increase their holdings in Q3 2008. Such reclassification is legal thanks to an October 2008 change to IAS 39. French banks initially refrained from using the altered law. However, this changed in the fourth quarter of 2008 when France's largest bank, BNP Paribas, used IAS 39 to reclassify £7.3bn (€7.8bn) of assets. BNP lost £1.3bn (€1.4bn) in Q4 2008 compared to a 2007 Q4 profit of £0.9bn (€1bn).

Credit Agricole suffered a significantly smaller fourth quarter loss of £290.3m (€309m). The bank also used IAS 39 to reclassify a significantly higher amount of debt; Credit Agricole transferred a total of £11.3bn (€12bn) in assets in Q4 2008.

According to a report by an analyst at Credit Agricole, "The reclassified assets are those for which management's intention has been changed. Management has decided to hold them for the long term." If these assets had not been reclassified, Credit Agricole's net income would have been £468m (€498m) lower.

Societe Generale was the only top French bank to post positive fourth quarter results. It was also the bank that transferred the highest amount using IAS 39. SocGen declared a net profit of £82m (€87m) for Q4 2008 - a figure that pales in comparison to the £26.9bn (€28.6bn) of assets that SocGen transferred using IAS 39. Without this reclassification the bank's net profit would have been £1.4bn (€1.5bn) less.

Use of such accounting methods are not confined to French banks, however. On 16 March 2009 it came to light that Barclay's used tax avoidance schemes to avoid as much as £1bn per year in taxes. The scandal surfaced when a former Barclay's employee leaked internal memos to Liberal Democrat deputy leader Vince Cable.

While Cable admitted that Barclay's has not broken any laws, he said banks like Barclay's should be cut off from government funds if they engage in "cynical" tax avoidance measures. Speaking to MM Cable said that more cases of major banks avoiding taxes have subsequently come to light.

lindsey.white@ft.com