All's fair in valuation

Publicly traded investment firm American Capital Strategies reported a loss of $813 million, or $4.16 per share, in its first quarter report this May. In its defense, the firm said that most of the loss is merely the result of market turmoil and FAS 157 accounting methods. Until 2007, the firm had valued its investments based on its own internal models and original transaction costs.
American Capital believes FAS 157 presents an unfairly gloomy picture of its current financial situation, and has annuonced it expects to recoup the majority of the reported losses by the time it exits the loss-making investments.
“The substantial decline in our earnings is due to $997 million of unrealized depreciation, which we believe will have little impact on our future revenues, NOI and realized earnings,” chief executive Malon Wilkus said in a statement. “This depreciation was driven by declining trading prices, the continued widening of investment spreads and our adoption of SFAS 157.”
Nonetheless, the firm admits that it has seen a slowdown in M&A volume. As a result, the firm is undergoing an internal restructuring that will see the elimination of its offices in Philadelphia and San Francisco, along with 80 jobs.