March 10, 2010
Senate Financial Regulatory Revamp to Seek $50 Billion from Large Firms
Key Senate lawmakers have agreed to levy $50 billion in fees on the U.S.'s largest financial companies to cover the cost of paying for the collapse of financial firms, the Wall Street Journal reported today. The deal is expected to be part of a broader financial regulatory overhaul bill released in the next week by Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and Sen. Bob Corker (R-Tenn.). The way the senators plan to finance their proposed fund attempts to address concerns raised by the Federal Deposit Insurance Corp. and the Treasury Department. FDIC Chairman Sheila Bair has pushed for a large fund to be created in advance to pay for the future collapse of a financial company, and the House of Representatives passed a bill in December that would allow the government to create a fund holding as much as $150 billion from fees levied against large companies. The Senate deal would collect $50 billion upfront but allow the government to assess any more fees after the collapse, so as to spread the cost out both ahead of and after any failure. Negotiators are still working out how exactly the $50 billion should be collected, although they are expected to target just the biggest financial companies. It still hasn't been decided whether to base the fees on asset size or other metrics, for example. Read more. (Subscription required.)
In related news, Sen. Bob Corker (R-Tenn.), who is playing a crucial role in bipartisan negotiations over financial regulation, pressed to remove a provision from draft legislation that would have empowered federal authorities to crack down on payday lenders, the New York Times reported today. The payday lending industry is politically influential in Corker's home state and a significant contributor to his campaigns, though he denies any industry influence in the shaping of the bill's provisions. Sen. Banking Committee Chairman Christopher J. Dodd (D-Conn.) originally proposed legislation in November that would give a new consumer protection agency the power to write and enforce rules governing payday lenders, debt collectors and other financial companies that are not part of banks. Late last month, Corker pressed Dodd to scale back substantially the power that the consumer protection agency would have over such companies. Under the proposal agreed to by Dodd and Corker, the new consumer agency could write rules for nonbank financial companies like payday lenders. It could enforce such rules against nonbank mortgage companies, mainly loan originators or servicers, but it would have to petition a body of regulators for authority over payday lenders and other nonbank financial companies. Corker said that he had played a role in shaping that section of the legislation, but said people should withhold judgment about the treatment of payday lenders and other companies until the bill was made public. Read more.
Erickson Retirement Communities Reorganization Plan, Asset Sale Are Approved
Erickson Retirement Communities LLC on Monday received approval for its reorganization plan, which includes the sale of its assets for $365 million to its stalking-horse bidder, the Deal Pipeline reported yesterday. Under the fourth amended plan, administrative expense, compensation and reimbursement, and priority claims would be paid in full in cash, as would a $20 million debtor-in-possession loan from ERC Funding Co. LLC, an affiliate of its buyer Redwood Capital Investments LLC. The confirmation hearing for the plan is set for April 15. Read more. (Subscription required.)
Bank of America to End Overdraft Fees on Debit Purchases
Bank of America said yesterday that it was doing away with overdraft fees on purchases made with debit cards, a decision that could cost the bank tens of millions a year in revenue and put pressure on other banks to do the same, the New York Times reported today. Bank officials said that effective this summer, customers who try to make purchases with their debit cards without enough money in their checking accounts will simply be declined. Debit purchases account for roughly 60 percent of overdrafts at Bank of America, the nation?s largest issuer of debit cards. Banks are bracing for a new federal rule that will require them to get permission from account holders before providing overdraft services for debit purchases and A.T.M. withdrawals. That change was already expected to wipe out billions of dollars in overdraft revenue for the banks. Read more.
Freedom Communications' Reorganization Plan Approved
Freedom Communications, the publisher of the Orange County Register, received approval of its reorganization plan from Bankruptcy Judge Brendan Shannon yesterday, Reuters reported yesterday. The plan would cut the debt of the Freedom Communications by more than half to $325 million from $770 million. Secured lenders, led by JPMorgan Chase & Co. as the administrative agent, will eventually own the publisher and broadcaster. The Los Angeles-area publisher of about 90 publications said it expects to exit bankruptcy by the end of the month. The reorganization plan pays 70 percent of the senior executive retirement plans and provides $14.5 million for unsecured creditors through a litigation trust. Read more.
Spansion Seeks to Keep Control of Case, Awaits Plan Ruling
Spansion Inc. is hedging its bankruptcy court bets by asking for continued control of its chapter 11 restructuring while awaiting a federal judge's ruling on its bankruptcy exit plan, Dow Jones Daily Bankruptcy Review reported today. The fate of the company's proposed road to reorganization is in the hands of Bankruptcy Judge Kevin J. Carey, who heard arguments from both the chip maker and an opposing group of convertible-note holders during confirmation hearings that stretched for five days. Judge Carey is poised to decide whether to let Spansion exit bankruptcy or send it back to the drawing board to revamp its plan. Regardless of the outcome, Spansion wants to ensure that its exclusive right to introduce a plan and solicit votes from creditors is preserved. It is asking the court to extend its exclusivity period until Judge Carey rules. If that ruling denies Spansion's confirmation request, the company wants to stop creditors and other constituencies from filing a plan through April 30.
Celebrity Resorts Files for Chapter 11
Celebrity Resorts LLC and its affiliates filed for chapter 11 protection yesterday, listing tens of millions in estimated liabilities, the Orlando Sentinel reported today. Celebrity Resorts began showing signs of distress as early as July 2008, when it announced it was cutting an unspecified number of jobs and eliminating an area of its marketing business that was unprofitable. According to the time-share company's Web site, Celebrity Resorts has properties in 13 locations across the U.S. The company was formerly known as Resort World, a family-owned business that started selling time shares in the Caribbean in the 1970s and then in the Orlando area in the 1980s. Read more.
Bogus Web Site Targets Madoff Victims, According to SIPC
The Securities Investor Protection Corp (SIPC) warned yesterday that its Web site was being mimicked by a phony organization targeting Madoff investors, Reuters reported yesterday. The copycat site, www.I-SIPC.com -- I for International -- has a link to a picture of a large stack of U.S. currency under the headline, 'ISIPC & Interpol Discovers $1.3 billion hidding by Madoff in Malaysia.' In a statement, SIPC warned investors not to provide personal or financial information on the site, which has a Geneva mailing address. SIPC has alerted international market regulators and it is taking steps to shut down the site. Read more.
Analysis: As Fed Eases Loan Aid, Policy Challenges Arise
The Federal Reserve has terminated nearly all of the extraordinary lending programs it created in 2007 and 2008 to combat the credit crisis, but it now faces critical decisions in coming months about when and how to tighten monetary policy, the New York Times reported today. Two Fed officials ? Brian P. Sack, the executive vice president who oversees the trading desk at Federal Reserve Bank of New York, and Charles L. Evans, president of the Chicago Fed ? challenged the position that the Fed?s chairman, Ben S. Bernanke, and other members of the Fed?s policy-setting panel have stated for months: that the central bank would keep short-term interest rates ?exceptionally low? for ?an extended period.? The Federal Open Market Committee is scheduled to meet next Tuesday, and is widely expected to reiterate that language. Evans said yesterday that he interpreted an ?extended period? to mean at least six months. Evans said the Fed funds rate, which has been held near zero since December 2008, should stay there ?for some time,? because the Fed did not have the usual tension between its two mandates of maintaining price stability while promoting maximum sustainable employment. Read more.
Lenny Dykstra Wants Bankruptcy Case Dismissed
Former baseball star Lenny Dykstra, who filed for chapter 11 protection last July, now wants a bankruptcy judge to dismiss his case, claiming that he doesn?t belong in bankruptcy, Dow Jones Newswires reported yesterday. ?Bottom line, you don?t belong in bankruptcy when you have $100 million in assets,? Dykstra said yesterday. It is unclear how the ex-ballplayer arrived at the $100 million figure and also raises the question as to why he sought bankruptcy protection in the first place, since creditors have only filed about $27 million in claims against him. To get out of bankruptcy, Dykstra, who?s representing himself in his case, must convince a bankruptcy judge that regaining control of his finances is in the best interests of his creditors. A hearing on his bid is scheduled for April 6. Read more.
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