May 202009

 

Obama Administration Weighs
Creation of New Financial Regulatory Agency

The Obama administration is actively discussing the
creation of a regulatory commission that would have broad authority to
protect consumers who use financial products as varied as mortgages,
credit cards and mutual funds, the

face='Times










New

Roman' size='3'>Washington Post reported
today. Plans for a new body remain fluid, but it could be granted broad
powers to make sure the terms and marketing of a wide range of loans and

other financial products are in the interests of ordinary consumers.
Responsibility for regulation of consumer financial products is
currently distributed among a patchwork of federal agencies. The
proposal could centralize enforcement of existing laws and create a
vehicle for imposing tougher rules. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/05/19/AR2009051903061_pf.html'>Read

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Congress Passes
Anti-Foreclosure Bill

Congress yesterday sent the president legislation that

encourages banks to spare homeowners from foreclosure, after the
industry helped scuttle a tougher measure that would have forced lenders

to reduce monthly payments of owners in bankruptcy, the Associated Press

reported yesterday. The House voted 367-54 to pass the Helping Families
Save Their Homes Act. The Senate had previously voted 91-5 in favor of
the bill and approved the final version by unanimous consent. The bill
would expand an existing $300 billion program that encourages lenders to

write down an individual's mortgage if the homeowner agrees to pay an
insurance premium. The program, set to expire in 2011, would swap out a
homeowner's high-interest rate for a 30-year fixed loan backed by the
Federal Housing Administration. In addition, the bill extends through
2013 an increase in deposit insurance by the FDIC from $100,000 to
$250,000. 

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Lawmakers Look to Improve
Rating Agencies Oversight

Congress is likely to act this year on placing further

regulations on credit-rating agencies,

face='Times










New

Roman' size='3'>CongressDaily reported today.
Lawmakers on both sides of the aisle are targeting the firms for its
role in the subprime mortgage collapse. The firms -- dominated by
Moody's Investors Service and Standard & Poor's Rating Service --
did not sufficiently check the mortgage-backed securities that they gave

favorable ratings, loans that turned out to be based on poor
underwriting standards. After those loans went into default, critics
charged that the firms were more interested in the lucrative contracts
of Wall Street investment firms than conducting due diligence. Stepping
up such scrutiny, Senate Banking Securities and Insurance Subcommittee
Chairman Jack Reed (D-R.I.) introduced legislation yesterday to give the

SEC more authority over the industry and allow investors to sue a firm
if it 'knowingly or recklessly' failed to review key information. Firms
could avoid such liability by conducting thorough reviews or obtaining
assessments about the products from outside firms.

Autos

GM Doesn’t See UAW
Deal Before Bond Deadline

With a week remaining before the expiration of a
tender offer to its bondholders, General Motors said yesterday in a
regulatory filing that it did not expect to reach an agreement with the
United Automobile Workers and others before bondholders decide,
the
size='3'>New York Times reported today. GM is
trying to persuade the holders of $27 billion in unsecured notes to
exchange them for about 41 cents on the dollar. It must receive tenders
for 90 percent of its bonds in order for the offer to be successful and
avoid a bankruptcy filing. Many analysts believe that the offer, which
expires May 26, will fail and that GM will seek chapter 11 protection.
The automaker also must reach agreements with the union on concessions
required by the Obama administration, including modifications to the
terms of a health care fund that will assume responsibility for retiree
benefits. “To date GM has not reached agreements with the
aforementioned parties,” GM said in the filing with the Securities

and Exchange Commission, “and does not currently expect to reach
agreements prior to the May 26, 2009 expiration date and withdrawal
deadline of the exchange offers.” GM said that it would announce
on May 27 whether the tender offer will be extended or if the offers
will expire. 

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Chrysler Revamp Plan
Could Block Lawsuits from Current Vehicle Owners

If Chrysler’s bankruptcy plan is approved,
current owners of Chrysler, Dodge and Jeep vehicles may find that their
right to sue the automaker for injury-causing defects is a matter of
debate, the

size='3'>New York Times reported yesterday.
Under the proposed plan, which details how the automaker plans to
restructure and emerge as a new company in a partnership with Fiat and
the United Automobile Workers, Chrysler identified the obligations the
new entity would assume and those it would leave behind. The plan calls
for the new Chrysler to honor existing new-car warranties. There is no
promise, however, that it will be responsible for future
product-liability suits brought by owners of vehicles sold before the
automaker filed for bankruptcy. 

href='http://www.nytimes.com/2009/05/20/business/20chrysler.html?_r=1&ref=business&pagewanted=print'>Read

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In related news, the Pension Benefit Guaranty Corp.
has estimated that Chrysler LLC’s pension plans may be underfunded

by more than $10 billion, Bloomberg News reported yesterday. If the
pensions are terminated, the agency’s claim for the shortfall in
the automaker’s bankruptcy case “would exceed $9
billion,” Chrysler lawyers said in a filing today in U.S.
Bankruptcy Court in New York. Chrysler is seeking approval of a
settlement among the company, the PBGC, Cerberus Capital Management LP
and Daimler AG to partly fund the plans and avoid such a termination.
Chrysler’s proposed sale would extinguish Daimler’s $1
billion guaranty securing the pensions, according to the filing. 

href='http://www.bloomberg.com/apps/news?pid=20601087&sid=avFM_EBpqY1E&refer=home'>Read

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Pension Benefit
Guaranty’s Deficit Triples to $33.5 Billion

The Pension Benefit Guaranty Corp.’s deficit
tripled to $33.5 billion in the past six months as companies canceled
retirement plans in the U.S. recession, Bloomberg News reported today.
About $11 billion is for “completed and probable
terminations” of company plans and $7 billion is from an increase
in interest rates that boosted liabilities, Vince Snowbarger, the acting

PBGC director, said in written testimony to be delivered today to the
Senate Special Committee on Aging. The PBGC said that its financial
condition may worsen amid the likelihood for more pension plan failures.

In the first half of the fiscal year that began in October, the PBGC
took on almost four times the number of participants as it did in all of

2008. The potential for General Motors Corp. and Chrysler LLC to end
their plans has left the PBGC facing the prospect of adding 900,000
current and future beneficiaries. The PBGC, which pays retirement income

to almost 44 million Americans, estimates that $77 billion of the
automotive industry’s pensions are underfunded, with about $42
billion of that guaranteed by the agency for retirees. 

href='http://www.bloomberg.com/apps/news?pid=20601087&sid=aX_YpTysrpx4&refer=home#'>Read

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Momentum Grows for Executive

Pay Rules

New efforts are taking shape in Washington, D.C., to
overhaul governance of public companies in the wake of the financial
crisis, with both the Securities and Exchange Commission and lawmakers
proposing tough new measures, the

face='Times










New

Roman' size='3'>Washington Post reported
today. The SEC is planning to propose new rules today that would allow
pension funds and individual shareholders alike to shape executive
compensation and nominate who sits on corporate boards, officials said.
The rules would allow at least 1 percent of shareholders to vote
directly on who should sit on the board. The figure would be higher for
smaller companies. Though the SEC is just proposing the rules today,
they are likely to pass after a comment period as three of the agency's
five commissioners support proxy access. Yesterday, Sen. Charles E.
Schumer (D-N.Y.) introduced legislation that would require companies to
hold shareholder votes each year on the compensation of top executives
and seek approval from investors for 'golden parachutes.' Under the
bill, both votes would be nonbinding. The measure also calls for the
separation of the role of chairman and chief executive, and instructs
the SEC to issue rules that would give shareholders more power to
nominate directors on corporate boards. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/05/19/AR2009051903572_pf.html'>Read

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Federal Reserve Widens
Mandate of TALF

Starting in July, the Federal Reserve will offer loans

under the Term Asset-Backed Securities Loan Facility (TALF) to help
investors finance their purchases of top-rated commercial
mortgage-backed securities, or CMBS, issued before Jan. 1, 2009,
the

size='3'>Wall Street Journal reported today.
The loans in this program so far have been aimed at helping investors
buy car debt, credit card debt and other consumer loans. The Fed
announced earlier this month that the program also would include newly
issued CMBS debt. The Fed also has expanded the number of credit-rating
firms allowed to rate deals for the TALF program, from the existing pool

of Standard & Poor's, Moody's and Fitch Ratings, to include DBRS and

Realpoint LLC. 
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Two Firms Accused of Fraud
in Debt Settlement

New York Attorney General Andrew M. Cuomo sued two
large debt-settlement companies yesterday, saying that they had engaged
in fraudulent and deceptive business practices and false advertising,
the
size='3'>New York Times reported today. The
suits seek to enjoin the companies, Nationwide Asset Services and Credit

Solutions of America, from many of their business practices, including
charging customers before any settlement work is done. They also seek
restitution and damages for dissatisfied customers. Credit Solutions
enrolled 18,000 customers in New York State in the last five years,
earning $17 million in fees, but settled the debts of fewer than 2,000
of them, Cuomo said. Nationwide signed up 1,981 New York residents in
three years, the suit against it says, but only 64 completed the
program. Twenty-seven of those ended up paying more than they originally

owed because of Nationwide’s fees, the suit alleges. 

href='http://www.nytimes.com/2009/05/20/business/20debt.html?ref=business&pagewanted=print'>Read

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Greenbrier Bankruptcy Case

Dismissed

A federal judge dismissed the Greenbrier resort's
bankruptcy case yesterday, clearing the way for a new owner to make good

on his pledge to return the iconic West Virginia property to
profitability, the Associated Press reported yesterday. 
Bankruptcy Judge

face='Times










New

Roman' size='3'>Kevin R. Huennekens granted
the resort's motion to dismiss the case yesterday after James Justice
testified that his company, Justice Family Group, has the financial
means to make the plan work. That financing includes proceeds from a
$436 million sale of Justice's West Virginia coal mines to a Russian
company. Justice purchased the resort on May 6 from railroad operator
CSX Corp. for $20.1 million outside of bankruptcy. The dismissal of the
chapter 11 case formally ended a dispute between Justice Family Group
and Marriott International, which intended to purchase Greenbrier from
CSX as part of the bankruptcy proceedings, which began in March. 

href='http://www.nytimes.com/aponline/2009/05/19/business/AP-VA-Greenbrier-Purchase.html?pagewanted=print'>Read

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Stay Lifted to Complete
Deal between Flying J and Shell

Bankruptcy Judge

face='Times










New

Roman' size='3'>Mary F. Walrath on Friday
agreed to lift the automatic stay in the chapter 11 proceedings of oil
company Flying J Inc. so that Shell Oil Products U.S. can complete the
subdivision of property it sold to one of the debtors nearly four years
before the bankruptcy filing, Bankruptcy Law360 reported
yesterday. Shell had previously filed a
size='3'>  motion to lift the automatic stay
so that it could complete the subdivision of property in Bakersfield,
Calif., pursuant to an agreement between Shell and debtor Big West of
California LLC. At the time, the two facilities were located on a single

parcel of land and needed to be officially subdivided, according to
court documents. The case is

face='Times










New

Roman' size='3'>In re Flying J Inc. et al.,
case number 08-13384, in the U.S. Bankruptcy Court for the District of
Delaware. 
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JG Wentworth Files
Prepackaged Chapter 11

J.G. Wentworth, a purchaser of structured settlements
and annuities, announced yesterday that it had filed a prepackaged
chapter 11 plan with the support of 90 percent of its term lenders,
Bankruptcy Law360 reported yesterday. The filing will not
affect any creditors except senior term lenders, who are owed about $370

million, and will create up to $100 million in new equity, J.G.
Wentworth said. As part of the plan, the company said that some of the
senior term lenders have agreed to accept stock in the company instead
of cash. J.G. Wentworth said that it expected its reorganization to be
approved and completed within 30 days, and that it would continue to
conduct business as usual during that time. It also said that it had
secured debtor-in-possession financing. 
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Ion Media Files for
Bankruptcy

Ion Media Networks Inc. filed for chapter 11
protection after the company said that it reached a restructuring
agreement with a group of debt holders to convert all its debt to
equity, Bloomberg News reported yesterday. Ion, a West Palm Beach,
Fla.-based owner of television stations, listed liabilities of more than

$1 billion and assets of as much as $10 million in its chapter 11 filing

yesterday. More than 100 subsidiaries were included in its bankruptcy
filing. A group owning more than 60 percent of Ion’s first-lien
senior secured debt agreed to the restructuring that would extinguish
more than $2.7 billion in indebtedness and preferred stock. The company
will get a new $150 million funding commitment underwritten by a group
of first-lien holders.The case is Ion Media of New York
Inc., 09-13124, U.S. Bankruptcy Court,
Southern District of New York (Manhattan). 

href='http://www.bloomberg.com/apps/news?pid=20601103&sid=aYV7U84_mowg&refer=us'>Read

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U.S. Weighs How to Let
Banks Give Money Back

Now that big banks seem to have stabilized, regulators

are trying to determine how and when these institutions should be
allowed to return their bailout money — and whether such a step
might leave banks vulnerable to another crisis should the economy turn
for the worse, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. Two weeks after the results of the federal
stress tests, several banks, among them Bank of New York Mellon, Goldman

Sachs, JPMorgan Chase, Morgan Stanley, State Street and U.S. Bancorp,
have begun formal discussions with regulators about repaying their
portion of the $700 billion rescue, said banking executives and a
federal official. New details emerged yesterday about the repayment
plans, including word that regulators would refuse to let a single major

bank exit first. Instead, around June 8, the Federal Reserve expects to
identify a group of banks that are ready to leave the bailout program.
The Treasury Department will handle the timing of the payments,
according to the proposal. 

href='http://www.nytimes.com/2009/05/20/business/20repay.html?_r=1&ref=business&pagewanted=print'>Read

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Banks Use Life Insurance
to Fund Bonuses

Banks are using a little-known tactic of holding
life-insurance policies on hundreds of thousands of their workers with
themselves as the beneficiaries to help pay bonuses, deferred pay and
pensions they owe executives, the

face='Times










New

Roman' size='3'>Wall Street Journal reported
today. Banks took out much of this life insurance during the mortgage
bubble, when executives' pay surged, and banking regulators affirmed the

use of life insurance as a way to finance executive pay and benefits.
Bank of America Corp. has the most life insurance on employees: $17.3
billion at the end of the first quarter, according to bank filings.
Wachovia Corp. has $12 billion, JPMorgan Chase & Co. has $11.1
billion and Wells Fargo & Co. has $5.7 billion. (Wells Fargo
acquired Wachovia at the end of last year.) 

href='http://online.wsj.com/article/SB124277653430137033.html#mod=testMod'>Read

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