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October 22, 2009
name='1'>House Panel to Examine Role for Bankruptcy and Antitrust
Law in Financial Regs Reform
The House Judiciary Subcommittee on Commercial and
Administrative Law will hold a hearing today featuring two panels of
witnesses examining the issue of “Too Big To Fail – The Role
for Bankruptcy and Antitrust Law in Financial Regulation Reform.”
Witnesses on the first panel include Michael Barr of the U.S. Department
of Treasury and Michael Krimminger of the Federal Deposit Insurance
Corp. The second panel will feature Prof. David Moss of Harvard Business
School, John Taylor of Stanford University, Harvey Miller of Weil,
Gotshal & Manges, Prof. Christopher Sagers of Cleveland-Marshall
College of Law, Prof. David Skeel of the University of
Pennsylvania Law School and Robert Weissman of Public Citizen.
href='http://judiciary.house.gov/hearings/hear_091022.html'>Click
here to read the prepared testimony.
Bernanke Airs Concern on Speeding Up
Credit Card Law
Federal Reserve Chairman Ben Bernanke said that speeding up the
effective date of new credit card rules to Dec. 1 from next year may
result in “unintended consequences” for banks, Bloomberg
News reported yesterday. “Card issuers must be afforded sufficient
time for implementation to allow for an orderly transition and to avoid
unintended consequences, compliance difficulties and potential
liabilities,” Bernanke said yesterday in a letter to Rep. Spencer
Bachus (R-Ala.). The credit card law, which takes effect in stages, will
require banks to apply payments to higher-rate balances first, limit
rate increases and ban practices such as “universal default”
or raising rates based on a missed payment with another lender. Most of
those rules are set to begin Feb. 22, while others, such as limits on
gift-card fees, are scheduled to start Aug. 22. House Financial Services
Committee Chair Barney Frank (D-Mass.) has said he wants to move up the
start date to prevent banks from “taking advantage of the
delay.” Card issuers including JPMorgan Chase & Co. and
Riverwoods, Ill.-based Discover Financial Services raised interest rates
and fees after President Barack Obama signed the Credit Card
Accountability Responsibility and Disclosure Act on May 22.
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=aZ4zPvmGfL50'>Read
more.
U.S. to Cut Pay for Executives of
Bailed-Out Companies
The Obama administration plans to order companies that have
received exceptionally large amounts of bailout money from the
government to slash compensation for their highest-paid executives by
about half on average, the Washington Post reported today. The
cuts will affect 25 of the most highly paid executives at each of five
major financial companies and two automakers. Cash salaries will be cut
by about 90 percent compared with last year. The administration will
also curtail many corporate perks, including the use of corporate jets
for personal travel, chauffeured drivers and country club fee
reimbursement. The seven companies under purvey by the administration's
'pay czar,' Kenneth R. Feinberg, are Citigroup, Bank of America, General
Motors, Chrysler, GMAC, Chrysler Financial and American International
Group. These firms have received a total of about $250 billion in
bailout funds from the Troubled Assets Relief Program, adopted last year
by Congress, and benefited from hundreds of billions of dollars more in
government guarantees and other support.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/10/21/AR2009102102719_pf.html'>Read
more.
Delaware Diocese's First-Day Motions
Approved
The Catholic Diocese of Wilmington Inc. has won court approval
to access its cash-management system, pay employee wages and appoint a
claims agent in its chapter 11 case, Bankruptcy Law360 reported
today. Bankruptcy Judge Christopher S. Sontchi granted
the diocese's first-day motions at a hearing yesterday, and scheduled a
hearing to determine whether an ill-abuse claimant, whose trial is
scheduled for November, can proceed with his suit. Judge Sontchi issued
orders authorizing the diocese to use its existing cash-management
system and corporate bank accounts, pay prepetition employee wages and
cover benefit programs, and appoint The Garden City Group as its claims
and noticing agent. The diocese also has filed an adversary proceeding
seeking to extend the automatic stay to cover co-defendants in several
sexual-abuse suits, which Judge Sontchi will rule on at the Nov. 2
hearing.
href='http://bankruptcy.law360.com/print_article/129655'>Read
more. (Subscription required.)
House Panel Approves Limited State
Pre-Emption for CFPA
The House Financial Services Committee yesterday moved closer
to approving legislation that would create a Consumer Financial
Protection Agency after adopting an amendment to provide for a limited
pre-emption of state consumer laws, CongressDaily reported. The
panel, by a voice vote, adopted an amendment by Rep. Melvin Watt
(D-N.C.) that would allow pre-emption for national banks if the Office
of the Comptroller of the Currency determines that state law
'significantly interferes' with the business of banking. State law could
be overridden if it unfairly discriminated against national banks
compared to state-chartered institutions, or if the state law is
explicitly prohibited by federal law. The panel rejected a rival
amendment by Rep. Jeb Hensarling (R-Texas) by a vote of 38-29 that would
have given national banks blanket exemption from state consumer laws.
The panel worked its way through other amendments, with a goal of
approving the bill today.
Banks May Face New Capital
Requirements
Momentum is building within the Federal Reserve to force banks,
especially large ones, to stock up on a new kind of debt that would
convert into equity if they hit rocky times, the Wall Street
Journal reported today. Two senior Federal Reserve officials offered
support to the idea of 'contingent capital,' which makes many bankers
nervous because it could be an expensive way to raise money. Federal
Reserve Gov. Daniel K. Tarullo and Federal Reserve Bank of Boston
President Eric Rosengren support the idea because banks’ debt
would convert to equity, putting the banks in a position to access
capital in times of crisis without having to go to lure new investors.
Second, it could impose market discipline on banks. Investors in the
instruments would be expected to demand that firms avoid taking
excessive risks because the instruments could be diluted in value or
wiped out when they convert from debt to equity. Federal Reserve Bank of
New York President William Dudley also endorsed the idea last week, and
said the debt could convert to capital if certain 'triggers' were hit,
such as the deterioration of the bank or the banking system more
broadly.
href='http://online.wsj.com/article/SB125616071467199729.html'>Read
more. (Subscription required.)
Lend America Faces Probe for Alleged
Fraud on FHA Loans
The Justice Department filed a civil suit on Tuesday asking a
judge to bar Lend America, a Melville, N.Y.-based mortgage lender, from
making government-backed loans, the Wall Street Journal reported
yesterday. The government is accusing the company, known for its
television infomercials touting FHA-backed loans, of falsely certifying
borrowers that received $14 million in FHA-backed loans. The
government’s investigation of Lend America began nearly one year
ago, and the company had been put on probation by the Department of
Housing and Urban Development earlier this year for making misleading
marketing claims. Lend America has originated some 11,300 FHA-backed
loans over the last two years, ranking them 22nd among FHA lenders by
volume, according to an FHA database. Around three-quarters of those
loans were refinances, and the default rates on Lend America loans were
between two and three times the national rate. Lend America had also
completed 10 of the 23 loan modifications that have been completed
through the FHA’s Hope for Homeowners program.
href='http://blogs.wsj.com/developments/2009/10/21/lend-america-faces-federal-probe-for-allegedly-brokering-fraudulent-fha-loans/tab/print/'>Read
more. (Subscription required.)
Nortek files for Chapter 11
Nortek Inc., a U.S. building products manufacturer, filed for
prepackaged chapter 11 protection, Reuters reported today. In a filing
with the U.S. Bankruptcy Court for the District of Delaware yesterday,
Nortek listed estimated assets of $1.65 billion and estimated
liabilities of about $2.77 billion, the court papers showed. On Tuesday,
Rhode Island-based Nortek and its parent NTK Holdings Inc., said it had
received votes accepting the prepackaged plans of reorganization from
all voting classes of its creditors. The case In re NTK Holdings
Inc, U.S. Bankruptcy Court, District of Delaware, No
09-13611.
href='http://in.reuters.com/article/fundsNews/idINBNG45115420091022'>Read
more.
Investors Offer to Sweeten Bid for
Philadelphia Papers
Investors backing the current owners of Philadelphia's daily
papers have offered to sweeten their bid to buy the dailies out of
bankruptcy protection, the Wall Street Journal reported today. To
buy the papers and pay off lenders seeking to gain control of the
dailies, a group backing current CEO Brian Tierney has agreed to put up
more than $35 million in cash and real estate, which includes the
papers' downtown Philadelphia headquarters. Now the group is adding to
their bid a $20 million note payable to the lenders and an agreement to
split the papers' profits over the next five years with the lenders, the
papers' parent company said late Tuesday. The papers' parent company,
Philadelphia Media Holdings LLC, said the offer consists of sharing with
creditors half the papers' cash flow runs for five years, after
accounting for some of the company's obligations. The note is payable
over five years.
href='http://online.wsj.com/article/SB10001424052748704597704574486292648706718.html'>Read
more. (Subscription required.)
Tricom Set to Exit Chapter 11 after
Plan Receives Approval
Bankruptcy Judge Stuart M. Bernstein yesterday
signed off on Dominican telecommunications company Tricom SA's
reorganization plan, effectively ending the company's stay in bankruptcy
court, Bankruptcy Law360 reported yesterday. The plan is set to
take effect in 10 days after Judge Bernstein signs a final plan approval
order, and there will be periodic status conferences in the bankruptcy
court prior to the final order. The first is scheduled for Dec. 17.
Under the new settlement, Bancredito Panama will be allowed a $29.1
million unsecured claim. The bank, which was placed into compulsory
liquidation by Panamanian authorities in 2003, originally filed a $92
million claim against Tricom.
href='http://bankruptcy.law360.com/print_article/129716'>Read
more. (Subscription required.)
U.S. Trustee Wants More Info on
Reader's Digest Funds
U.S. Trustee Diana Adams is demanding that the
Reader's Digest Association provide more information about funds saved
away in various domestic and foreign bank accounts amid worries about
estate money potentially being kept in institutions that are not
authorized depositories, Bankruptcy Law360 reported yesterday.
Adams has been asking for the information since Reader's Digest first
entered bankruptcy in August after realizing that some of the
debtors’ funds were held in accounts maintained in banks that are
not authorized depositories. While Adams previously acknowledged that it
would take time for Reader's Digest to comply with the requirement, she
is protesting the company's recent bid asking the court to allow it to
use the foreign bank accounts without having met the necessary
requirements.
href='http://bankruptcy.law360.com/print_article/129714'>Read
more. (Subscription required.)
Merrill Cries Foul over Fees in Jeweler
Bankruptcy
Secured lender Merrill Lynch Mortgage Capital Inc. has
protested fees requested by law firms Herrick Feinstein LLP and Phillips
Nizer LLP in the bankruptcy of jewelry retail company Fred Leighton
Holding Inc., contending that the firms have accomplished little over
the course of the proceedings, Bankruptcy Law360 reported
yesterday. Merrill Lynch alleged that during the time of Phillips
Nizer’s and Herrick’s employment, the debtors’ equity
owner Ralph Esmerian was able to steal millions of dollars in cash and
jewelry — some of which constitute Merrill Lynch’s
collateral — from the bankrupt company. The company has also
failed to file monthly operating reports, in violation of U.S. Trustee
guidelines, while under Herrick’s counsel, and the firm’s
request includes vaguely described activities that do not appear to be
related to the case, the objection said.
href='http://bankruptcy.law360.com/print_article/129712'>Read
more. (Subscription required.)
Bank of America Sells Republic Bank to
Private Equity Firms
Struggling financial giant Bank of America said yesterday that
it would sell First Republic Bank to an alliance of investors, the
New York Times reported today. While the full terms were not
disclosed, the deal is said to be valued at about $1 billion and
expected to close in the second quarter of 2010. The sale will allow
Bank of America to raise capital and unload a banking unit that many
analysts say does not fit well into its larger retail banking franchise.
Bank of America acquired First Republic as part of last year’s
purchase of Merrill Lynch, which paid $1.7 billion for the bank in 2007.
First Republic, which is based in San Francisco, serves mainly wealthy
individuals and business customers in California, New York and Nevada.
The bank largely stayed clear of subprime mortgages and other bad assets
that have crippled other banks.
href='http://www.nytimes.com/2009/10/22/business/22republic.html?_r=1&ref=business&pagewanted=print'>Read
more.
SEC Proposes Tighter Limits on Private
Trading System
Federal regulators are proposing tighter oversight for
so-called dark pools, trading systems that do not publicly provide price
quotes and compete with major stock exchanges, the Associated Press
reported yesterday. The Securities and Exchange Commission voted
yesterday to propose new rules that would require more stock quotes in
the dark pool systems to be publicly displayed. The changes could be
adopted sometime after a 90-day public comment period. The alternative
trading systems, private networks that match buyers and sellers of large
blocks of stocks, have grown explosively in recent years and now account
for an estimated 7.2 percent of all share volume. SEC officials have
identified them as a potential emerging risk to markets and
investors.
href='http://www.nytimes.com/2009/10/22/business/economy/22regulate.html?ref=business&pagewanted=print'>Read
more.
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