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October 9, 2008
United States May Take Ownership Stake
in Banks
Having tried without success to unlock frozen credit markets, the
Treasury Department is considering taking ownership stakes in many U.S.
banks to try to restore confidence in the financial system, the New
York Times reported today. Treasury officials say that the
recently-passed $700 billion bailout bill gives them the authority to
inject cash directly into banks that request it. Such a move would
quickly strengthen banks' balance sheets and, officials hope, persuade
them to resume lending. In return, the law gives the Treasury the right
to take ownership positions in banks, including healthy ones. The
Treasury plan was still preliminary and it was unclear how the process
would work, but it appeared that it would be voluntary for
banks.
href='http://www.nytimes.com/2008/10/09/business/economy/09econ.html?_r=1&hp=&oref=slogin&pagewanted=print'>Read
more.
AIG May Receive Additional $37.8
Billion from Fed
The Federal Reserve will provide as much as $37.8 billion in additional
liquidity to American International Group Inc.'s regulated insurance
units after rescuing the company with an $85 billion loan last month,
Bloomberg News reported yesterday. The Fed board used emergency powers
to authorize the New York Fed to borrow up to $37.8 billion in
investment-grade, fixed-income securities from AIG in return for cash
collateral, the Fed said. AIG CEO Edward Liddy, appointed by the United
States to run the firm, has been trying to sell units to repay the
original loan. The collapse of the New York-based insurer was the
subject of Congressional hearings yesterday, which triggered criticism
of the company for spending $440,000 on a California conference at a
beachside resort less than a week after AIG was rescued.
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=aKrY8WLDMKxs&refer=home'>Read
more.
Bank of America Agrees to Buy Back
Securities
Federal and New York state regulators yesterday announced a settlement
with Bank of America Corp. in which the company has agreed to buy back
as much as $4.7 billion in auction-rate securities to settle charges
that it misled thousands of customers about the risky investments, the
Associated Press reported. The regulators announced similar settlements
with the RBC Capital Markets Corporation, which agreed to buy back about
$850 million of auction-rate securities from about 2,200 investors. The
Securities and Exchange Commission and New York Attorney General Andrew
M. Cuomo announced the settlements with Bank of America, which joined
nine other large banks in agreeing to buy back more than $50 billion of
the securities in total. Bank of America also agreed to “use its
best efforts” to provide as much as $5 billion in liquidity to
other businesses that bought the securities.
href='http://www.nytimes.com/2008/10/09/business/09rate.html?ref=business&pagewanted=print'>Read
more.
McCain Reshuffles Financial Rescue
Proposal
Sen. John McCain's (R-Ariz.) $300 billion plan to help homeowners
struggling with mortgage debt carries big potential benefits for the
troubled real-estate sector, but could reduce the funds available for
rescuing banks, the Wall Street Journal reported today. The
proposal, which McCain announced during Tuesday night's presidential
debate with Sen. Barack Obama (D-Ill.), also could make winners out of
investors -- including mortgage lenders -- that the Bush administration
and Congress have tried to exclude from the government's funding.
McCain's plan focuses on using much of the government's rescue powers to
buy individual mortgages that homeowners are having trouble paying. The
plan would allow the government to buy the existing troubled loans at
face value and the Federal Housing Administration would issue a new,
federally guaranteed 30-year fixed-rate loan, based on the property's
present value, at a 'manageable' interest rate.
href='http://online.wsj.com/search?KEYWORDS=McCain&mod=DNH_S'>Read
more. (Subscription required.)
New York Fed Calls Meeting for CDS
Market
The Federal Reserve Bank of New York has summoned participants
in the credit-default-swap (CDS) market to another meeting Friday amid
jostling by dealers, exchanges and regulators for a bigger role in this
$55 trillion market, the Wall Street Journal reported today.
The meeting would be the second this week as regulators wrestle with
rival solutions to streamline and reduce counterparty risk in the market
through the creation of one or more central clearinghouses.
Futures-exchange giant CME Group Inc. and Citadel Investment Group this
week unveiled plans for a CDS trading platform tied to a clearinghouse,
inviting banks and other users to take equity in a project slated to
start in early November.
href='http://online.wsj.com/article/SB122350024001316653.html'>Read
more. (Subscription required.)
Goody's Reorganization Plan
Confirmed
Bankruptcy Judge Christopher S. Sontchi confirmed Goody's Family
Clothing Inc.'s reorganization plan, allowing the company to obtain new
financing and push forward its efforts to emerge from bankruptcy,
Bankruptcy Law360 reported yesterday. The confirmed plan is
expected to become effective in approximately 10 days, the company said
Tuesday. The Knoxville, Tenn.-based retailer filed for chapter 11
protection on June 9 after closing a number of its less-profitable
stores. Tight credit markets, merchandise flow problems and
underperforming stores had left the company with as many as 50,000
creditors, it said. Now that the reorganization plan has been approved,
Goody's will obtain new financing, which it will use to fund working
capital and refinance its $175 million debtor-in-possession facility
from General Electric Commercial Finance Corporate Lending.
href='http://bankruptcy.law360.com/articles/71981'>Read
more. (Subscription required.)
Retailers' Sales Fall
Sharply
Sales at some of the nation's best-known retailers fell by double digits
in September, highlighting the tough economy and raising fresh questions
about how many of those chains can survive, the New York Times
reported today. High- and low-end retailers like Nordstrom, J.C. Penney
and Kohl's have lowered their earnings projections. Some analysts are
expecting a fresh wave of bankruptcies among store chains after the
holidays. Already, famous names like the Sharper Image and CompUSA have
gone out of business. Share prices of most leading retailers, which have
been declining for many months, fell by 2 to 5 percent on
Wednesday.
href='http://www.nytimes.com/2008/10/09/business/09retail.html?ref=business&pagewanted=print'>Read
more.
Citigroup and Wells Fargo Nearing
Compromise over Wachovia
Citigroup and Wells Fargo, the two banks vying for control of the
Wachovia Corp., are negotiating a compromise that would hand the bulk of
the troubled bank to Wells Fargo, the New York Times reported
today. Citigroup and Wells Fargo yesterday extended their legal
cease-fire until 8 a.m. on Friday at the urging of the Federal Reserve.
The dispute broke out 10 days ago when Citigroup, prodded by federal
regulators, offered $2.16 billion for the banking operations of
Wachovia. Four days later, Wells Fargo shocked Wall Street by swooping
in with a $15 billion bid for all of Wachovia. The two banks appeared to
be heading toward a solution that would give Wells Fargo about 80
percent of Wachovia's deposits, along with its branches on the West
Coast and in the Southeast. Under this solution, Wells would also buy
Wachovia's big retail brokerage and mutual fund arms. Citigroup would
get the remaining 20 percent of Wachovia's deposits, which correspond
with its branches in the mid-Atlantic and the Northeast.
href='http://www.nytimes.com/2008/10/09/business/09bank.html?ref=business&pagewanted=print'>Read
more.
Massachusetts Regulators Probe
Complaints of Asset Management Company
Massachusetts regulators are investigating complaints about Reserve
Management Co., a New York asset manager that shook investors in
September with news of a money-market-fund loss, the Wall Street
Journal reported today. Reserve Management announced Sept. 16 that
its flagship Primary fund had fallen below the money-fund industry's
$1-a-share standard. The loss stemmed largely from its investments in
short-term debt of bankrupt Lehman Brothers Holdings Inc. The news
touched off a rush of withdrawals from Reserve Primary and throughout
the money-fund world. The Primary fund, which had about $62 billion in
early September, has redeemed about $10 billion. Reserve Management,
which received a temporary order from the Securities and Exchange
Commission to postpone payment, has announced plans to distribute an
additional $20 billion on a pro-rata basis in mid-October, and said
other redemptions will follow when money becomes available as assets
mature or are sold.
href='http://online.wsj.com/article/SB122350927405517307.html'>Read
more. (Subscription required.)
Billionaire Sues Lehman over
Collateral
Texas billionaire and energy tycoon T. Boone Pickens has sued Lehman
Brothers Holdings Inc. for $59.9 million, claiming that the bankrupt
investment bank breached its contract by failing to repay collateral
posted by Pickens, Reuters reported yesterday. Lehman Brothers Commodity
Services Inc. failed to return $18,157 to Pickens and approximately $42
million posted by four of his BP Capital LLC funds after their deals
were terminated by Lehman's bankruptcy filing, according to the lawsuit,
filed on Monday in New York State Supreme Court.
href='http://www.nytimes.com/reuters/business/business-us-lehman-tboonepickens.html?pagewanted=print'>Read
more.
International
Iceland Shares Suspended,
Biggest Bank Taken Over
Iceland today seized control of its biggest bank, Kaupthing, to
try to shore up its banking system and halted all trade on its stock
market, Reuters reported today. The state has now taken over three of
the nation's major banks after Landsbanki and Glitnir were put under
state control earlier this week. The stock exchange suspended trading in
all shares, citing unusual market conditions. The exchange, part of the
Nasdaq OMX Group, said trade would not resume until Monday.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/10/09/AR2008100900359_pf.html'>Read
more.