The problem lies in the Fair Fair Value accounting standard...

The problem lies in the Fair Fair Value accounting standard that, wrongly in my opinion, allows (actually mandates) that the debt portfolios be continually restated at fair value. For things like bonds and debentures, there is an open market, so that can form a basis of fair value. There is no active and open market for debt portfolios, so fair value is what management says it is. By the nature of accounting, if assets are revalued, then the contra entry goes into the profit account.

The consequences of the foregoing is that management can fabricate a profit by buying debtors ledgers, and up-valuing them. The temptation is therefore to keep on buying, show a revaluation based profit, and use that performance to borrow or raise more capital to buy more debtors ledgers, and keep on doing that until the turd hits the fan.

Historically, the debt-buying sector used to buy debtors ledgers and collect about twice what they paid. Consequently, simply amortising debtors ledgers at about half of the collections worked well, and profit was recognised when the money was collected. That aligned profit recognition to to the norms of many businesses - profit arises when goods are sold, not before then on the basis that they are going to be sold at reasonably close to a target margin.

If you look at historical records of CCP, you will see that it amortised PDLs at circa 47% of collections, which in effect means it collected 1/47% = 2.13 for what it paid fordebtors ledgers. In yeras when CCP focused on collecting its older debt, the % could drop to circa 45%, because they collected more cash from substantially amortised debtors ledgers, but the expense per dollar collected would probaby be higher, so the ratio of collections to NPAT was not much different in those periods.

PNC and CLH always reported lower amortisation of something like 42-45%, suggesting they were collecting more on every dollar invested, but I never believed that was true, and both ran into strife in recent years, as did CCP a dozen years ago.

In this game, management can choose to recognise profit early to create an illusion of efficacy, but over the life of of a debtors ledger they cannot. CCP's management choose to value debtors ledgers conservatively, and it does so by claiming its method of deriving fair value is fair. I do not hold PNC, and never have, so the foregoing is generic, because I do not study CCP, as I do in the case of CCP. I have held CCP for years.