December 29, 2008
SEC Chief Defends His Restraint
Christopher Cox, chairman of the Securities and Exchange
Commission (SEC), is defending his restrained approach to the financial
crisis, saying he has provided steady leadership as Wall Street's main
regulator at a time when other federal regulators have responded
precipitously to upheaval in the markets, the Washington Post
reported Wednesday. During his tenure, the SEC watched as all the
investment banks it oversaw collapsed, were swallowed up or got out of
their traditional line of business. But in his first interview since
Bernard L. Madoff's Ponzi scheme was discovered earlier this month, Cox
said he was not responsible for the agency's failure to detect the
alleged fraud and that he had responded properly to the broader
financial crisis given the information he had. Confronted with criticism
from lawmakers, former officials and even some of his staff, Cox said he
took pride in his measured response to the market turmoil, adding that
the biggest mistake of his tenure was agreeing in September to a
three-week ban on short-selling of financial company stocks. But in
publicly acknowledging for the first time that this ban was not
productive, Cox said he had been under intense pressure from Treasury
Secretary Henry M. Paulson Jr. and Fed Chairman Ben S. Bernanke to take
this action, and that he did so reluctantly.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/12/23/AR2008122302765.html'>Read
more (free subscription required).
Regulators Appoint Freddie Board
Mortgage-finance giant Freddie Mac moved a step closer to restoring
normal corporate oversight after being taken over by the government
earlier this year, rounding out its board with seven new directors, the
Washington Post reported Wednesday. Directors board are paid
$160,000 a year, while the chairman of the board, John A. Koskinen,
appointed several months ago, will be paid $290,000. Directors can
receive up to $25,000 more for leading committees of the board. Since
being taken over, Freddie and Fannie Mae have been operating without
functioning boards-which traditionally oversee management decisions
about accounting, compensation, business practices and risks. Fannie may
announce its new board in coming days. Without boards, Fannie and
Freddie risked violating the rules they must follow as public companies
and as firms listed on the New York Stock Exchange.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/12/23/AR2008122302474.html'>Read
more (free subscription required).
Petters Case May Require Many Bankruptcy Attorneys
It could take every bankruptcy lawyer in Minnesota's Twin Cities to help
untangle the financial mess caused by the fall of businessman Tom
Petters, according to the Associated Press Wednesday. Petters and
associates are charged with defrauding investors of more than $3 billion
in a long-running Ponzi scheme, which caused a chain of bankruptcy
filings that resulted in the number of creditors and interested parties
to grow exponentially. Petters' entities, from Sun Country Airlines to
Polaroid to Petters Co. Inc., had little in common beyond their
owner-also leaving their creditors with few shared links. One
Minneapolis bankruptcy attorney told the St. Paul Pioneer Press that the
“one-of-a-kind” case is pulling in nearly every bankruptcy
practice in the Twin Cities as a result.
href='http://www.sctimes.com/article/20081224/BUSINESS/112240041'>Read
more.
Montana PSC Accuses NorthWestern of Violating Bankruptcy
Stipulation
The Montana Public Service Commission said it will seek fines of more
than $750,000 against NorthWestern Corp., alleging that the company
violated terms of a 2004 bankruptcy stipulation, the Associated Press
reported Friday. The utility company does business as NorthWestern
Energy. The PSC voted 5-0 this week to find NorthWestern in violation of
the “limited investment basket cap” provisions of the 2004
stipulation. The regulatory panel also voted to seek related fines from
the company in district court. Commissioner Ken Toole says NorthWestern
exceeded limits on the credit it could use when obtaining financing to
buy the Colstrip 4 power plant in eastern Montana. The utility also
serves customers in South Dakota and Nebraska.
href='http://www.missoulian.com/articles/2008/12/26/news/local/znews05.txt'>Read
more.
Flying J Gains Access to Cash
Flying J Inc. has been able to keep its cash spout flowing as it looks
to restructure while under court protection, TheDeal.com reported
Friday. The Ogden, Utah-based oil company won interim access to cash
collateral at first-day hearings on Dec. 23 in the U.S. Bankruptcy Court
for the District of Delaware in Wilmington, with a final hearing on the
cash use set for Jan. 16. The cash collateral will be used to pay
employees, vendors and suppliers. It will also help buy time for Flying
J as it tries to recover from a liquidity crisis. The company said it is
hoping to use chapter 11 protection to help address its short-term
liquidity issues, though it didn't indicate in court papers exactly what
its restructuring plan would be. Flying J filed for chapter 11 on Dec.
22, three days after defaulting on payments due to prepetition lender
Bank of America NA.
href='http://www.thedeal.com/servlet/ContentServer?cid=1229013213121&pagename=TheDeal%2FNWStArticle&c=TDDArticle'>Read
more.
Bankruptcy Filings Soar in Tampa
More than 1,600 businesses throughout the United States were owed $425.6
million in the approximately 100 largest cases filed in the U.S.
Bankruptcy Court for the Middle District of Florida between Oct. 1 and
Sept. 30, 2007, the Tampa Bay Business Journal reported Friday.
The filings have created a cycle of unpaid bills, layoffs and economic
stress in the area. In most cases, creditors will get 25 cents or less
on the dollar and virtually none will get everything owed to
them.
href='http://tampabay.bizjournals.com/tampabay/stories/2008/12/29/story1.html'>Read
more.
Lehman's Filing Destroyed Billions in Value
The Wall Street Journal reported Sunday that as much as $75
billion of Lehman Brothers Holdings Inc. value was destroyed by the
unplanned and chaotic form of the firm's bankruptcy filing in September,
according to an internal analysis by the company's restructuring
advisers. A less-hurried chapter 11 bankruptcy filing likely would have
preserved tens of billions of dollars of value, according to a
three-month study by the advisory firm Alvarez & Marsal. An orderly
filing would have enabled Lehman to sell some assets outside of federal
bankruptcy court protection, and would have given it time to try to
unwind its derivatives portfolio in a way that might have preserved
value, the study concludes. It is too early to say how much Lehman
creditors will recover in the bankruptcy process. Unsecured creditors
have asserted in court filings that they are owed about $200 billion.
The bond market is projecting a recovery of about $20 billion, or about
10 cents on the dollar, for these creditors.
href='http://online.wsj.com/article/SB123050916770038267.html'>Read
more. (subscription required)
Auto
Bush to Steer Course of Aid to Automakers
The White House is moving closer to a dramatic restructuring of the
nation's ailing automakers, deliberating among several options including
an 'orderly' bankruptcy in return for an emergency government infusion
of billions of dollars, according to Sunday's Washington Post.
As the White House raised the prospect of bankruptcy, Treasury
Department senior officials were reportedly coalescing around an
alternative that would reshape the companies but not require them to
file for bankruptcy protection. Treasury Secretary Henry M. Paulson Jr.
has repeatedly said that federal help for Detroit must put the companies
on track for long-term viability rather than simply delay their
collapse. Throughout the financial crisis, President Bush has leaned
heavily on the Treasury to develop a preferred course of action. In this
case, however, he is being presented with options and will make the
ultimate call. Under a managed bankruptcy or other form of major
restructuring, auto workers unions could be forced to make wage
concessions, management could be shuffled and investors' stakes punished
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/12/18/AR2008121802131.html?wprss=rss_business/government'>Read
more. (subscription required)
Deadline for GMAC Passes With No Word
GMAC, the financing arm of General Motors, remained silent over whether
bondholders had approved a plan that would help provide GMAC with
federal bailout money, the New York Times reported Sunday. GMAC
bondholders had a midnight deadline on Dec. 26 to approve a
bond-exchange program that would have enabled GMAC to have sufficient
capital to become a bank holding company-a move that GMAC says is
necessary for it to continue functioning. Becoming a bank holding
company would qualify GMAC to apply for bailout financing from the
federal government's bank rescue fund. The company has not stated
whether the plan has succeeded. The complicated debt-exchange program
was a required step for GMAC. Last Wednesday, the Federal Reserve
approved GMAC's application to become a bank holding company, pending
approval of the exchange plan.
href='http://www.nytimes.com/2008/12/29/business/29gmac.html?_r=1=business'>Read
more.
GM Sues Bankrupt Parts Supplier over Equipment
General Motors is suing a bankrupt parts supplier in an
effort to recoup the parts and equipment it needs to build the new
Chevrolet Camaro and avoid another potentially costly setback,
Marketwatch.com reported yesterday. The auto maker, already struggling
to stay afloat amid a crippling liquidity crisis, said that it stands to
lose millions of dollars if the parts and tooling aren't returned
immediately by Troy, Mich.-based Cadence Innovation LLC. Without the
equipment, GM says production could be interrupted at several assembly
plants, with a ripple effect hitting suppliers and dealers. The damages,
GM said in a bankruptcy court filing, 'would be substantial, but
difficult, if not impossible to calculate.' Cadence, which makes
consoles, door panels and other parts, filed for chapter 11 bankruptcy
in August and entered liquidation proceedings earlier this month. GM, in
a court filing Wednesday, wants the parts and tooling returned
immediately so it can have a new supplier in place by Jan. 12,
2009.
href='http://www.marketwatch.com/news/story/GM-sues-bankrupt-parts-supplier/story.aspx?guid=%7B3CBF4CE1-E3E8-4A0F-9653-19FD41ECF14B%7D'>Read
more.
Private Equity Firms Near Deal to Buy IndyMac
IndyMac Bancorp, one of the largest banks to fail as a result of the
subprime mortgage crisis, is close to being sold to a consortium of
private equity and hedge fund firms in a complex deal partially financed
by the federal government, the New York Times reported Sunday.
The Federal Deposit Insurance Corporation (FDIC), along with a team of
former Lehman Brothers bankers who are now with Deutsche Bank and
Barclays Capital, has been engaged in the sale process since federal
regulators declared IndyMac insolvent in July and seized the company.
The deal is in the final stages of negotiations, which are private, and
could be announced as early as Monday, though they cautioned that the
talks could still fall apart. If a deal is reached, it would still need
approval from the federal Office of Thrift Supervision before it can be
completed. At the time, the collapse of IndyMac ranked as one of the
largest failures in FDIC history and was quickly followed by near
failures and subsequent fire sales of the banking giants Wachovia and
Washington Mutual.
href='http://www.nytimes.com/2008/12/29/business/29indymac.html?ref=business
<http://www.nytimes.com/2008/12/29/business/29indymac.html?ref=business>'>Read
more.
Commentary: WaMu Built Empire on Shaky Ground
On a financial landscape littered with wreckage, WaMu, a Seattle-based
bank that opened branches at a clip worthy of a fast-food chain, stands
out as a singularly brazen case of lax lending. By the first half of
this year, the value of its bad loans had reached $11.5 billion, nearly
tripling from $4.2 billion a year earlier, the New York Times
reported on Saturday. Interviews with two dozen former employees,
mortgage brokers, real estate agents and appraisers reveal the
relentless pressure to churn out loans that produced such results. While
that sample may not fully represent a bank with tens of thousands of
people, it does reflect the views of employees in WaMu mortgage
operations in California, Florida, Illinois and Texas. Their accounts
are consistent with those of 89 other former employees who are
confidential witnesses in a class action filed against WaMu in federal
court in Seattle by former shareholder.
href='http://www.nytimes.com/2008/12/28/business/28wamu.html?_r=1=business
<http://www.nytimes.com/2008/12/28/business/28wamu.html?_r=1=business>'>Read
more.
E-commerce Retailer Parent Co. Files for Chapter 11
Parent Co. said it has voluntarily filed for chapter 11 bankruptcy
protection and will consider selling some or all of its operations, the
Associated Press reported Monday. Parent Co. took shape in January when
the combination of Denver-based eToys with Jupiter, Fla.-based Baby
Universe decided to officially change its name to something that
described its newly broadened focus on growing families. The company's
name change was one of a series of steps designed to turn around a
business with a weak balance sheet in need of new financing. The company
also said late Sunday that it received a letter from Nasdaq stating it
currently does not meet continued listing requirements due to the
delayed filing of its quarterly report for the period ended Nov. 1.
Parent Co. has until Feb. 23, 2009, to send a compliance plan to Nasdaq,
at which point the exchange may give the company until June 22, 2009, to
href='http://biz.yahoo.com/ap/081229/parent_bankruptcy_protection.html?.v=1'>Read
more.
Heller Ehrman Put into Bankruptcy by Dissolution
Committee
Heller Ehrman LLP, the California law firm that dissolved in September,
was put into bankruptcy by the committee formed to wind up the business,
Bloomberg News reported Monday. The chapter 11 petition, filed Sunday in
San Francisco, listed both assets and debt of $50 million to $100
million. A dissolution plan adopted by Heller Ehrman had given the
committee power to file for bankruptcy on the firm's behalf. Founded in
1890, the firm dissolved after merger attempts failed and the departure
of partners led to a default on its primary credit agreement. Litigation
work had dried up since the firm settled several large cases last
year.
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=aT.8dXbffxnM'>Read
more.
California Home Builder Files for Chapter 11
Carlsbad, Calif.-based home builder Barratt American has filed
for bankruptcy reorganization, derailed by the housing bust and a
dispute with its key lender, Bank of America, the San Diego
Union-Tribune reported Saturday. Barratt American and three sister
companies, including its mortgage-lending arm, filed for chapter 11
protection Dec. 24. It has a long list of creditors, mostly trade
contractors; its top 20 unsecured creditors are owed more than $21
million. The company has drastically scaled back operations in the past
several months, slashing staff from about 140 employees to about 15. Two
days before Barratt sought protection, Bank of America foreclosed on
seven of Barratt's current subdivisions or condo projects, claiming it
was owed nearly $79 million. The bank is taking back four other projects
in Riverside and San Bernardino Counties.
href='http://www3.signonsandiego.com/stories/2008/dec/27/1b27barratt234850-barratt-files-chapter-11-reorgan/?zIndex=28443'>Read
more.
Baltimore Opera Files for Bankruptcy
The Baltimore Opera Company has filed for bankruptcy, the Associated
Press reported on Saturday. According to court records, the 58-year-old
company filed for bankruptcy reorganization protection Tuesday. Deborah
Goetz, senior director of marketing and communications, says that the
board of trustees voted to file for bankruptcy Dec. 4. The company has
struggled as ticket sales and donations have dwindled. The last two
productions of the season, 'The Barber of Seville' and 'Porgy and Bess,'
have been cancelled, and tickets won't be refunded. The company said it
plans to continue raising money for future productions.