October 292009

 

size='3'>Financial Regulatory Overhaul

Credit-rating Legislation

Clears House Financial Services Committee

The House Financial Services Committee yesterday voted

(49-14) to tighten controls on credit-rating firms in response to
complaints that the firms misjudged the risks of many of the
mortgage-related securities that sank financial markets last year,
the
size='3'>Washington Post reported today. H.R.
3890, the 'Accountability and Transparency in Rating Agencies Act,'
would require credit-rating firms to tell the public more about how
they're paid for ratings and would give the SEC new powers to oversee
how they operate. It also would require the rating firms to appoint more

independent members to their boards of directors. The most controversial

change would make it easier for people to sue credit-rating firms if
they believe the firms did a poor job evaluating prospective
investments. Credit-rating firms oppose the provision because they say
it would bring a flood of new lawsuits against them that would, in fact,

be easier to win because of the new legal liability standard. They argue

that this could raise costs for all sorts of investors. Supporters of
the provisions point out that credit-rating firms have never lost a
court battle, suggesting that there is not a strong enough legal
deterrent to their issuing faulty ratings. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/10/28/AR2009102804731_pf.html'>Read

more.

Analysis: Bailed-Out
Companies Deal with the Government Involvement in Their Business
Decisions

Companies such as GM, Chrysler Group LLC and Bank of
America Corp. that have received government bailouts now have the
equivalent of 535 new board members -- 100 U.S. senators and 435 House
members, the

size='3'>Wall Street Journal reported today.
Since the financial crisis broke, Congress has been acting like the
board of USA Inc., invoking the infusion of taxpayer money to get banks
to modify loans to constituents and to give more help to those in danger

of foreclosure. Members have berated CEOs for their business practices
and pushed for caps on executive pay. They have also pushed GM and
Chrysler to reverse core decisions designed to cut costs, such as
closing facilities and shuttering dealerships. Lawmakers say it's their
obligation to guard the government's investments, ensure that bailed-out

firms are working in the country's interests and protect their
constituents. Executives say that congressional demands gobble up time
and make a rocky business environment even more unpredictable. Bank
chief executives say incessant calls from Capitol Hill, combined with
threats of legislation, were among the main incentives for them to pay
back money injected by the government. 

href='http://online.wsj.com/article/SB125677552001414699.html?mod=WSJ_hps_LEFTWhatsNews'>Read

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Pay Czar Tells House
Panel He Wants No Wider Authority

The Obama administration's pay czar told lawmakers
yesterday that he does not want to expand his authority beyond the seven

firms he now oversees, resisting entreaties from some lawmakers to more
broadly rein in Wall Street pay, the

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size='3'>Wall Street Journal reported today.
Kenneth Feinberg, the Treasury Department's special master for executive

compensation, told the House Oversight and Government Reform committee
that he wanted the pay structures he has devised to 'guide others in the

private marketplace. But that is where my authority should end.'
Feinberg also defended his efforts, telling lawmakers he cut cash
compensation by 90 percent for all employees, despite having raised base

salaries for 89 employees. Feinberg, who last week slashed the average
compensation for 25 employees at the seven firms by approximately 50
percent, said that he was wary of exceeding his mandate. His office is
reviewing the pay structure for the next 75 highest-paid employees at
each of the seven companies, which he said is appropriate given the
government's large investment in the companies. 
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FTC's Powers Would Grow
under Financial Overhaul

The Federal Trade Commission would get new powers to
oversee and punish companies that run afoul of its rules as part of a
financial-services oversight bill currently before Congress, the

size='3'>Wall Street Journal reported today.
The legislation proposes to strengthen the FTC by allowing the agency to

craft regulations more quickly and enhance its ability to impose civil
penalties on companies. It would also allow the agency to take action
against companies 'aiding and abetting' unfair or deceptive business
practices, not just the original perpetrator. The bill, which has
reached this point virtually unnoticed by all but a few lobbyists and
interest groups, is scheduled for debate today in the House Energy and
Commerce Committee today. 

href='http://online.wsj.com/article/SB125677809189114853.html?mod=WSJ_hps_LEFTWhatsNews'>Read

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CIT Gets $4.5 Billion
Through Lender Group

CIT Group Inc., the 101-year-old lender trying to
avert collapse, received a $4.5 billion loan from a “diverse group

of lenders” yesterday and called billionaire investor Carl
Icahn’s competing offer “unfunded,” Bloomberg News
reported yesterday. The financing group included some of CIT’s
existing bondholders, who also supplied $3 billion in July, the New
York- based company said today in a statement. CIT has faced possible
bankruptcy since the government refused to provide a second bailout in
July. CIT lost $5 billion in nine quarters after the collapse of the
subprime mortgage market cut off its access to short-term funding. The
lender has been enticing bondholders to swap their claims to cut debt by

at least $5.7 billion or vote on a prepackaged bankruptcy, leading Icahn

to claim CIT was trying to “purchase votes” and to offer
$4.5 billion himself. 

href='http://www.bloomberg.com/apps/news?pid=20601087&sid=aiDaZdeGULUk'>Read

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Insurers Found Liable in New

Century Blast Fax Spat

A magistrate judge has found that a $2 million
settlement paid by bankrupt New Century Mortgage Corp. to end a class
action over unsolicited fax advertisements should be covered by its
insurance policies under their “advertising injury”
provisions,

size='3'>Bankruptcy Law360 reported yesterday.

Magistrate Judge Mary Pat Thynge issued her recommendations, the most
recent development in the four-year case against Great Northern
Insurance Co. and Federal Insurance Co., in the U.S. District Court for
the District of Delaware on Monday. New Century agreed to pay the $2
million settlement after it was accused of violating the Telephone
Consumer Protection Act when it sent out 200,000 faxes advertising its
loan services. The class members alleged they lost the use of toner, ink

and paper when the unwanted fax came through. The insurers argued that
because the faxes damaged the class members' property by using up toner,

ink and paper, the claim should be addressed under the policies'
property damage provision. However, that provision doesn't cover the
damage because New Century knew the fax would cause the loss of those
items. Judge Thynge agreed with the insurers on the property damage
claim, but said that the settlement would be covered under the policies'

advertising injury provisions because the unsolicited fax violated the
class members' right to seclusion, a form of privacy. 
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Judge Approves $75 Million
in DIP Cash for FairPoint

Bankruptcy Judge

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size='3'>Burton R. Lifland authorized a number

of FairPoint Communications Inc.’s first-day motions, granting the

debt-ridden telephone company access to $75 million in
debtor-in-possession financing and tweaking bankruptcy stays to reflect
concerns from several states over regulatory rights,

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size='3'>Bankruptcy Law360 reported yesterday.

Judge Lifland signed numerous interim orders Tuesday and yesterday,
setting in motion a restructuring that aims to shed roughly $1.7 billion

of debt and transfers the company into the hands of its senior lenders.
FairPoint has permission to borrow up to $20 million of the DIP facility

to meet immediate restructuring costs and will access the remainder in
the near future, according to the order. The court also authorized
FairPoint’s bankruptcy stays and protections, but added language
to allay fears from public utility commissions in the Northeast that the

measures could impede their regulatory authorities. 
href='http://bankruptcy.law360.com/print_article/130943'>Read more.
(Subscriptions required.)

Senate Tweaks Homebuyer
Credit Proposal

The Senate is taking another stab at extending the
first-time homebuyer credit, with a tentative new plan to renew the
$8,000 credit through the spring and offer a reduced credit of $6,500
for 'step-up' buyers purchasing a new home for the first time in five
years, C

size='3'>ongressDaily reported yesterday. The
proposal would require prospective homebuyers to have a contract in hand

by April 30, with another 60 days to close on the sale, to qualify. The
credit would begin to phase out at $125,000 in adjusted gross income per

person, or $225,000 per couple, and the sale price of a new home could
not exceed $800,000. The proposal is expected to cost around $10
billion.

AIG Recoups CDS
Collateral

After shelling out billions of dollars to Wall Street
banks last year on souring trades, American International Group Inc. has

gotten some of that money back, thanks to a turnaround in the very
securities that helped level the insurer, the

face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The cash that AIG is getting back from Wall
Street is tied to credit-default swaps. When the credit crisis hit, AIG
had to fork over billions of dollars to the banks, draining it of cash
and helping to push it to the brink of a bankruptcy filing. Billions of
dollars have flowed from banks into AIG coffers in recent months, as the

figure may have topped $3 billion in the second quarter, public filings
suggest. Goldman Sachs Group Inc. has sent back at least about $1
billion. Many of these trades were closed out last year after the
government rescue in an effort to stem banks' collateral calls to AIG.
However, some trades remained in place, including those that recently
have reversed in AIG's favor, prompting banks to return
collateral. 

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New Federal Power Urged
over Municipal Bond Sales

Elisse B. Walter, one of the five Securities and
Exchange Commission commissioners, yesterday called for legislative
changes to put municipal bond markets on a more even footing with the
stock and corporate bond markets, the

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size='3'>New York Times reported today. The
municipal bond market, long a regulatory backwater, has become too prone

to defaults and accounting irregularities, Walter said. She said that
the Depression-era laws that exempted municipal bonds from oversight by
the SEC had outlasted their usefulness. Walter urged Congress to repeal
the Tower Amendment, a 1975 law limiting federal authority over states
and local government bodies that raise money on the bond markets.
Currently, municipal bonds do not have to be registered with the SEC,
and governments generally report their financial condition with the type

of accounting that can sometimes make them look much more solid than
they would under the corporate accounting rules. The governmental rules
are not enforceable by the SEC in any case. 

href='http://www.nytimes.com/2009/10/29/business/29sec.html?_r=1&ref=business&pagewanted=print'>Read

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Judge Defers Action in
Tribune Lawsuit

A bankruptcy judge has deferred action on the Tribune
Co.'s request to halt a lawsuit alleging that Chairman Sam Zell misused
an employee stock ownership plan in taking the company private in a 2007

leveraged buyout, the Associated Press reported yesterday. Attorneys in
the case said yesterday that they are awaiting an Illinois judge's
ruling on Tribune's motion to dismiss the federal lawsuit, which was
filed by a group of current and former

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size='3'>Los Angeles Times staffers. The
motion to dismiss was the subject of a hearing last week. Meanwhile,
Tribune sought an injunction in bankruptcy court to prevent the lawsuit
from proceeding against other defendants who are not part of the
bankruptcy case. The bankruptcy judge agreed to await a ruling by the
Illinois judge on the motion to dismiss.

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