Groundhog Day approaches. I don't mean the actual calendar date, but the excellent 1993 Bill Murray movie about the Pittsburgh weatherman stuck with repeating the same day of his life over and over until he gets it right.

This Groundhog Day isn't nearly as funny or entertaining, I'm afraid. What's being done over and over is the filing of non-reliance 8-Ks with the SEC due to improper use of the shortcut method of testing hedge effectiveness. (Actually, the shortcut method is an alibi for not doing any effectiveness testing of a hedge transaction, so it's a bit of a misnomer.)

Today's company making us feel like we're stuck in Groundhog Day: The Banc Corporation of Birmingham, Alabama. Their 8-K filing denotes one of the prime reasons for a failed shortcut method: they didn't realize that broker's fees related to the CDs that are part of an interest rate swap have a fair value of something at the outset. And to get shortcut treatment, the fair value can only be zero.



Being in a link-happy mood today, here's a link to Michael Rapoport's piece on the subject in today's Wall Street Journal. And a link to Glass, Lewis & Co., whose analyst Jason Williams has prepared an excellent study on the subject and is cited in the article.