Bank One Corporation - Page 163

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                    3.  Use of Own Costs                                              
               FNBC’s adjustments for administrative costs are based on               
          FNBC’s own costs and cost allocation rules rather than on market            
          data.  We believe that such an approach was correct for purposes            
          of section 475.  As mentioned above, we value FNBC’s swaps as the           
          difference in value between the legs.  We believe that the                  
          administrative costs must be taken into account in determining              
          the value of FNBC’s leg in that the inherent value of that leg              
          includes FNBC’s forecast of its administrative costs related                
          thereto.  In this regard, we agree with the experts that the best           
          approach to valuation in these cases is the income approach.80              
               F.  Other                                                              
               Petitioner argues that FNBC did not include all of the                 
          adjustments to midmarket value that may have been appropriate.              
          According to petitioner, the industry allows many adjustments,              
          and FNBC took adjustments only for administrative costs and                 
          credit risks.  Petitioner observes that the G-30 report and OCC             
          also recommended adjustments for (1) investing and funding costs,           
          (2) greater credit adjustments (e.g., FNBC did not take an                  
          adjustment for compensation for credit exposure), and (3)                   
          anticipated profit.                                                         


          80 The record does not indicate that property similar to any                
          of FNBC’s swaps was sold near the valuation dates so as to use              
          the market approach.  Nor does the record support applying the              
          asset-based approach to those swaps.                                        




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