Monday, 2 March 2009

Where´s the goodwill?


Today I came to grips with a new term that seems to be having quite an effect at the moment, "Goodwill Write Down" or "Goodwill Impairment Charge" as it is more correctly reported.

It seems that HSBC, the bank that we thought might escape the major crash with just a few scratches and bumps, finally got hit by the proverbial truck and lost a packet, mainly with the 2003 Countrywide acquisition.
The adjustment of goodwill is obviously understandable as the brand is worth less now than it was when things were all sheets to the wind, although the terminology seems to reek of irony.
In the investopedia site they describe it as writing off worthless goodwill, rather than goodwill that they thought they had, was never tangible and now is judged to no longer exist, intangibly speaking.

Reminds me of the term "friendly fire" which we don´t hear about so much since the last US led invasion. That was also a strange one, soldiers who had been massacred by their own side (generally Americans) are described as killed by friendly fire.
I don´t know what your definition of "friendly" is, but getting shot and killed by someone is not the sort of thing I would expect as friendly. Inviting round for a cup of tea or BBQ might be more in line, but who am I to judge international terminology.

As far as goodwill goes, I would assume none of it is worthless, although one can understand that the intangible value of banks is severely knocked for six at the moment.
As HSBC is arguably among the stronger banks, makes you wonder if other, less solid financial institutions are making their own goodwill write downs, or how this might affect their assets when they do.

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