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October 30, 2008
Groups Seek Credit Card Debt
Forgiveness Program
An alliance of financial industry interests and consumer advocates
yesterday asked federal regulators to allow lenders to reduce by as much
as 40 percent the amount of credit card debt owed by deeply indebted
consumers in a special program, the Associated Press reported. The
unusual joint request from the Financial Services Roundtable and the
Consumer Federation of America highlighted the urgency of the situation:
consumers -- even those with strong credit records -- defaulting at high
levels on their credit cards, while banks battered by the credit crisis
bleed tens of billions in red ink from the losses. The request came in a
letter to U.S. Comptroller of the Currency John Dugan in which the
groups asked him to approve a pilot project allowing major credit card
companies to sharply reduce the amounts owed by heavily indebted
consumers who don't qualify for the repayment plans that are currently
available.
href='http://www.abiworld.org/e-news/OCCRepaymentPlanLetter10_28_08.pdf'>Click
here to read the letter.
Relief Plan for Struggling Homeowners
Moves Forward
The U.S. government's latest plan to aid struggling homeowners could
move as many as three million people into more-affordable mortgages, the
Wall Street Journal reported today. The proposal, which has
been designed by the Treasury Department and Federal Deposit Insurance
Corp., is close to being finalized. Estimated to cost between $40
billion and $50 billion, the plan would have the government agree to
share a portion of any losses on a modified mortgage offered by lenders.
Funding for the plan could potentially come out of the $700 billion
financial-rescue program authorized by Congress earlier this month. As
many as 7.3 million American homeowners are expected to default on their
mortgages between 2008 and 2010, with 4.3 million of those losing their
homes, according to Moody's Economy.com, a research firm.
href='http://online.wsj.com/article/SB122531677860781723.html'>Read
more. (Subscription required.)
Government Takeover of Freddie Mac and
Fannie Mae Not Lowering Mortgage Rates
Despite the government's takeover of Fannie Mae and Freddie Mac,
mortgage rates for consumers are rising, not falling, the Wall
Street Journal reported today. The Federal Housing Finance Agency,
which regulates the government-backed providers of funding for home
mortgages, seized management control of them in early September. The
FHFA cited losses that could wipe out their capital, incapacitating them
at a time when the government wants Fannie and Freddie to buy mortgages
aggressively in an effort to drive down interest rates on home loans.
However, the companies' ability to do that is constrained by continued
jitters among bond investors, who insist on higher yields than they used
to accept. Consumer mortgage rates have risen modestly since early
September. The average yesterday for 30-year fixed-rate loans conforming
to the standards of Fannie and Freddie was 6.64 percent, up from 6.34
percent on Sept. 5, just before the regulator took control of them,
according to HSH Associates. Meanwhile, Fannie Mae said yesterday that
it will write off nearly all of the $20.6 billion in tax credits now on
its books, a move that will result in a big charge against its
profits.
href='http://online.wsj.com/article/SB122531026792281313.html'>Read
more. (Subscription required.)
Governors Call for Rescue Package for
States
Governors David A. Paterson (D) of New York and Jon S. Corzine (D) of
New Jersey said yesterday that state governments would face devastating
cutbacks if they did not receive assistance soon, the New York
Times reported today. “We are cutting all we can,”
Paterson told the House Ways and Means Committee. “Therefore, we
feel that targeted, sensible actions by the federal government will
provide relief for us now.” Speaking to the House Transportation
and Infrastructure Committee, Corzine implored, “We need federal
help to get through these tough times.” Their remarks increased
the pressure on the federal government to include money for state
governments in the next round of economic stimulus legislation.
href='http://www.nytimes.com/2008/10/30/nyregion/30paterson.html?ref=business&pagewanted=print'>Read
more.
Legacy Costs Crunch the Big Three
Automakers
A panel of experts arranged by ABI yesterday said that one or more of
the Big Three automakers might file for chapter 11 protection in the
near future to try to reduce pension expenses, retiree benefits and
other “legacy costs,” the Fort Wayne
Journal-Gazette reported today. Experts on ABI's panel examining
future distress in the automotive sector said that the Big Three had a
big disadvantage competing with foreign automakers as U.S. manufacturers
are on the hook for pension plans and other benefits. “The foreign
competition, they don't have the same type of legacy costs, union
contracts and collective-bargaining agreements that the Big Three
have,” said Ron Silverman, a partner in Bingham McCutcheon LLP. If
one of the Big Three files, that might provide more leverage to the two
others to renegotiate their legacy costs, said Deborah Thorne of Barnes
and Thornburg.
href='http://www.journalgazette.net/apps/pbcs.dll/article?AID=/20081030/BIZ/810300392&template=printart'>Read
more.
Delta Air, Northwest Win U.S. Approval
to Merge
Delta Air Lines Inc. and Northwest Airlines Corp. won U.S. government
approval to combine, clearing the last regulatory hurdle to becoming the
world's largest carrier, Bloomberg News reported yesterday. “Delta
and Northwest is likely to produce substantial and credible efficiencies
that will benefit consumers and is not likely to lessen
competition,” according to the U.S. Justice Department. The
combination of Delta, the third-biggest U.S. airline by traffic, and
Northwest, the sixth largest, will take the top global spot from AMR
Corp.'s American Airlines. Delta Chief Executive Officer Richard
Anderson will run the new carrier, which will keep Delta's name and
Atlanta headquarters.
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=aqKn78b_0rMw&refer=home'>Read
more.
Value City Receives $40 Million DIP
Loan
Just two days after filing for chapter 11 protection, discount retailer
Value City Department Stores has secured $40 million in
debtor-in-possession financing from lenders National City Business
Credit Inc. and Wells Fargo Retail Finance LLC, Bankruptcy
Law360 reported yesterday. Judge James M. Peck
signed off on the loan Tuesday in the U.S. Bankruptcy Court for the
Southern District of New York. Value City said the financing would allow
it to conduct its liquidation in an orderly manner and maintain the
value of the estate. The DIP agreement does not require the debtors to
pay any commitment fees or charges generally required by lenders under
similar circumstances, the debtors said. A hearing for final approval of
the DIP loan is slated for Nov. 19.
href='http://bankruptcy.law360.com/articles/74717'>Read
more. (Subscription required.)
Judge Tosses Fraud Claims Suit against
Subprime Lender
U.S. District Court Judge Florence-Marie Cooper dismissed a class action
accusing Fremont General Corp. along with a number of its executives of
securities fraud on Tuesday, saying that allegations against the
troubled subprime lender failed to state a claim on which relief could
be granted, Bankruptcy Law360 reported yesterday. Judge Cooper
granted the defendants' motion to dismiss the amended consolidated
complaint filed by lead plaintiff New York State Teachers' Retirement
System in March. The complaint, originally filed in September 2007,
accused the defendants of violating the U.S. Securities and Exchange
Commission's Section 10(b) and Rule 10b-5, as well as generally accepted
accounting principles. The putative class includes those 'who purchased
or acquired Fremont General common stock during the time period between
October 27, 2005 and March 2, 2007,' when the company announced it had
consented to a cease-and-desist order from the U.S. Federal Deposit
Insurance Corp., which 'had reason to believe that [Fremont] had engaged
in unsafe or unsound banking practices and had committed violations of
law and/or regulations.'
href='http://bankruptcy.law360.com/articles/74780'>Read
more. (Subscription required.)
Kansas Insurance Company Files for
Chapter 11
Kansas insurance agency Brooke Corp. filed for chapter 11
protection on Tuesday, just weeks after breach-of-contract and fraud
lawsuits were filed against the company, Bankruptcy Law360
reported yesterday. In its petition, Overland Park, Kan.-based Brooke
listed assets of $512 million and liabilities of $447 million. A lawsuit
filed Sept. 11 by the Bank of New York Mellon Corp. alleges that Brooke
and its subsidiaries diverted up to $5 million from insurance franchises
around the United States into private accounts.
href='http://bankruptcy.law360.com/articles/74779'>Read more.
(Subscription required.)
Fed Trims Interest Rate by a Half
Point
The Federal Reserve lowered its benchmark interest rate by half a
percentage point yesterday, its second big rate cut this month as policy
makers tried to fend off what could be the worst economic downturn in
decades, the New York Times reported today. The move brought
the target rate for federal funds to 1 percent, down to the near-record
lows reached in 2003 and 2004, when the Fed was trying to encourage an
economic recovery after the bursting of the Internet bubble. The central
bank left open the possibility of continuing to lower the rate, warning
that “downside risks to growth remain.”
href='http://www.nytimes.com/2008/10/30/business/economy/30fed.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
New York Attorney General Asks for
Executive Pay Data from Banks
New York Attorney General Andrew M. Cuomo sent a letter yesterday to
nine big financial institutions receiving government aid requesting more
information on their executives' compensation, the New York
Times reported today. Cuomo gave the companies a week to provide a
“detailed accounting regarding your expected payments to top
management in the upcoming bonus season.” Cuomo's letter also
warned that payments worth more than the services provided by executives
might violate New York law. The letter follows one sent earlier this
week to the same banks by House Committee on Oversight and Government
Reform Chairman Henry A. Waxman (D-Calif.) urging them not to use any
government money for bonuses or other payments and asking for data on
pay going back to 2006.
href='http://www.nytimes.com/2008/10/30/business/30pay.html?ref=business&pagewanted=print'>Read
more.
Bank of America Sues Bear Stearns
Unit, Ex-Staffers
Bank of America Corp. filed a lawsuit against the asset-management unit
of Bear Stearns Cos. and former fund managers Ralph Cioffi and Matthew
Tannin, alleging they misled the bank about the financial health of two
funds that collapsed last year, the Wall Street Journal
reported today. The lawsuit claims that the Bear unit and its managers
concealed from Bank of America that the funds were suffering substantial
withdrawal requests from investors and were in imminent danger of
collapse in the spring of 2007. The lawsuit alleges breach of contract
and fraud. Bank of America, based in Charlotte, N.C., structured and
marketed a $4 billion securitization in May 2007 of mortgage-backed
assets primarily owned by the two Bear-managed funds, according to the
lawsuit.
href='http://online.wsj.com/article/SB122532516858982249.html'>Read
more. (Subscription required.)
IRS May Tighten Rules that Send
Profits Abroad
The Internal Revenue Service is considering a plan to curb a tactic
commonly used by multinational corporations with American operations to
lower their tax bills, a move that would help bring back some of the
billions of dollars in taxable profits held overseas, the New
York Times reported today. The IRS over the past few years
has increased its scrutiny of corporations using the tactic known as
“transfer pricing.” Multinational corporations, whether
based in the United States or overseas, are legally able to cut their
United States taxes and keep profits offshore in low-tax jurisdictions
through their calculations of the prices associated with transferring
goods and services between their divisions. By many accounts, abuse of
the tactic deprives federal coffers of billions of dollars in tax
revenue each year. Curtailing it could force scores of big corporations
that are now in disputes with the IRS over their transfer-pricing
arrangements to pay large amounts in back taxes and penalties.
href='http://www.nytimes.com/2008/10/30/business/30tax.html?ref=business&pagewanted=print'>Read
more.
International
Japan Unveils Economic Stimulus
Package
Japan's government today unveiled a new stimulus package including
¥5 trillion ($51.45 billion) in fresh spending, redoubling its
efforts to keep the global financial crisis from aggravating the
country's economic slump, the Wall Street Journal reported. The
package, which aims to prop up the nation's sagging growth and stabilize
its financial markets, is the second that Japan has formulated this
year. A package presented in late August was designed to counter high
global prices for oil and other resources.
href='http://online.wsj.com/article/SB122535747793083815.html'>Read
more. (Subscription required.)
Healthy Countries to Receive IMF
Loans
The International Monetary Fund announced yesterday that it would lend
up to $100 billion to healthy countries that are having trouble
borrowing as a result of the turmoil in the global markets, the New
York Times reported today. The Federal Reserve also said that it
would commit up to $30 billion each to Brazil, Mexico, South Korea and
Singapore, to enable those countries to more easily swap their
currencies for dollars. The coordinated measures are meant to restore
confidence in emerging markets, where stocks and currencies have plunged
in recent days as hedge funds and other investors pull out.
href='http://www.nytimes.com/2008/10/30/business/worldbusiness/30global.html?ref=business&pagewanted=print'>Read
more.