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March 26, 2009
Geithner to Propose
Expansion of U.S. Oversight of Financial System
Treasury Secretary Timothy F. Geithner plans to
propose today a sweeping expansion of federal authority over the
financial system, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported today. The Obama administration's plan would extend
federal regulation for the first time to all trading in financial
derivatives and to companies including large hedge funds and major
insurers such as American International Group. The administration also
will seek to impose uniform standards on all large financial firms,
including banks, an unprecedented step that would place significant
limits on the scope and risk of their activities.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/03/25/AR2009032502311_pf.html'>Read
more.
In related news, Securities and Exchange Commission
chairman Mary Schapiro is considering asking lawmakers to require the
registration of hedge funds and to give her agency the power to regulate
credit default swaps and municipal bonds, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported today. In a scheduled appearance before the Senate
Banking Committee, Schapiro will also say that the SEC plans to
harmonize regulations governing investment advisers and brokers and
tighten rules surrounding money market mutual funds.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/03/25/AR2009032503087_pf.html'>Read
more.
To view the witness list and prepared testimony for
today’s Senate Banking Committee hearing at 9:30 a.m. ET titled
“Enhancing Investor Protection and the Regulation of Securities
Markets – Part II,” please
href='http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=081fbcf6-953b-4701-ba03-e354ec6e8514'>click
here.
Additionally, the House Financial Services Committee
will be holding a hearing today titled “Addressing the Need for
Comprehensive Regulatory Reform' at 10 a.m. ET today.
href='http://www.house.gov/financialservices/schedule.html'>Click
here for the witness list and prepared testimony.
Mortgage Fraud Caseload Is
Overwhelming FBI
FBI Director Robert Mueller told the Senate Judiciary
Committee yesterday that the FBI's mortgage fraud caseload has more than
doubled in the past three years and the surge shows no sign of
subsiding,
size='3'>CongressDaily reported. Agents have
more than 2,000 active mortgage fraud investigations, up from 700
several years ago, and are pursuing more than 560 corporate fraud cases,
including probes directly related to the financial turmoil, the FBI
director said. To handle the uptick, Mueller said that he had shifted
personnel and employed new analytical techniques to root out wrongdoers.
However, the bureau lost the flexibility to direct agents to emerging
threats after the Sept. 11, 2001, terrorist attacks, Mueller said,
pointing out that about 2,000 agents had been moved to national security
projects from criminal casework. While the FBI has begun to repopulate
the criminal division, 'we still have a substantial way to go,' he said.
The agency wants to hire 2,800 new employees in FY09, including
intelligence analysts, technology and language specialists, and 850 new
agents.
Regulators Warn Against
Consumer Credit Backlash
Federal financial industry regulators yesterday
received a warning of a backlash among creditworthy borrowers against
the government's tighter enforcement of loan and bank capitalization
standards,
size='3'>CongressDaily reported. 'I believe
all of us are hearing the stories ... that the credit is just not out
there,' Rep. Carolyn Maloney (D-N.Y.) told representatives of the
Federal Reserve, FDIC, the Office of Thrift Supervision, and the Office
of the Comptroller of the Currency at a hearing of the House Financial
Services Committee. Panel members said they have been getting a steady
stream of complaints from borrowers current in their payments who had
seen their lines of credit cut in recent months as regulators have moved
to upgrade the financial industry's risk management practices. The
regulators also came under fire from banking industry representatives.
American Bankers Association representative Stephen Wilson said that
member institution officials had been reporting that field examiners of
the regulatory agencies had been excessively tough, even on the
strongest banks. Federal Reserve Governor Elizabeth Duke cited figures
showing demand for consumer loans had declined sharply in the wake of
the financial crisis. She told the committee that credit conditions
would probably have been substantially worse if federal regulators had
not acted forcefully.
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr030409.shtml'>Click
here to read the prepared testimony from the House Financial
Services Committee hearing.
JPMorgan Chase Sues Over
$7.9 Billion in Disputed WaMu Assets
JPMorgan Chase Bank NA has filed a lawsuit seeking to
stake its claim to at least $7.9 billion dollars in disputed Washington
Mutual Inc. assets it claims it was sold in an emergency deal brokered
in 2008 by the Federal Deposit Insurance Corp.,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. Chase filed an adversary suit Tuesday in
the U.S. Bankruptcy Court for the District of Delaware seeking a
declaration that it is the rightful owner of the disputed assets, which
include $4 billion in core capital for the former Washington Mutual
banking operations, $3.7 billion in a deposit credit, at least $234
million in tax benefits, as well as intellectual property, Visa shares
and employee benefit funds. Chase asserts that it is the rightful owner
of the assets on the grounds that they were purchased in good faith as
part of the September agreement, in which Chase assumed the retail
banking operations of WaMu for $1.9 billion after it was shut down by
the Office of Thrift Supervision. Chase’s lawsuit comes just days
after Washington Mutual filed its own suit in the U.S. District Court
for the District of Columbia challenging the FDIC’s sale of those
assets to Chase.
href='http://bankruptcy.law360.com/articles/93549'>Read more.
(Registration required.)
Gets Committee Vote Today
The House Financial Services Committee will vote today
on a bill that would limit the size of bonuses paid to executives at
some firms that receive federal bailout money after rejecting a proposed
amendment that would have capped pay for top executives at $1
million,
size='3'>CongressDaily reported today. The
bill would empower the Treasury secretary to restrict bonuses paid to
any employee even if the bonus was guaranteed by a contract prior to
government intervention in the company. The restriction would apply only
to firms that received a cash infusion through the Troubled Asset Relief
Program. It would not apply to private investors who participate in a
Treasury program intended to buy up toxic assets that are restricting
the ability of banks to loan money, lawmakers said.
Five Public Pension Funds
Sue Bank of America
Five public pension funds are seeking lead status in a
class-action suit against Bank of America Corp., alleging that the
nation's largest bank by assets made 'untrue statements' in the run-up
to its purchase of Merrill Lynch & Co. and did not disclose material
information to shareholders, the
face='Times






New
Roman'
size='3'>Wall Street Journal reported today.
The funds claim to have lost $274 million on their Bank of America
investments between July 21, 2008 and Jan. 20, 2009. They include the
State Teachers Retirement System of Ohio, the Ohio Public Employees
Retirement System, the Teacher Retirement System of Texas, a Dutch
national fund known as Stichting Pensioenfonds Zorg en Welzijn and
Fjarde AP-Fonden, a Swedish pension fund.
href='http://online.wsj.com/article/SB123800234136840125.html#'>Read
more. (Registration required.)
Congress Unlikely to Act
Quickly on Proposals to Raise Carried Interest Tax on Private Equity
Managers
Citing economic uncertainty, Senate Finance Chairman
Max Baucus (D-Mont.) yesterday cast doubt on prospects that Congress
would move swiftly to tax private equity managers' investment gains,
known as 'carried interest,' at regular income tax rates,
face='Times New Roman'>
size='3'>CongressDaily reported. 'Private
equity interests, I'm told, are not going to be paid in carried interest
for the next several years,' Baucus said, adding that expected
government revenues from the proposal would likely be less than
anticipated. 'It's less of an issue now,' he said. President Obama's
budget plan assumes nearly $24 billion in added revenues from the
carried interest tax hike. The proposal would end the current 15 percent
capital gains rate for investment partnership managers on their share of
their funds' gains and instead tax that income at regular income tax
rates. The proposal would take effect in 2011, when the highest bracket
is scheduled to increase to 39.6 percent, meaning fund managers would
see their taxes more than doubled.
Tropicana Entertainment May
Soon Emerge from Chapter 11
Tropicana Entertainment LLC, the owner of the
51-year-old Tropicana Resort & Casino on the Las Vegas Strip, said
Tuesday it could emerge from chapter 11 protection this spring, the
Associated Press reported yesterday. The company began sending out
ballots to creditors on Tuesday on a restructuring plan that will wipe
out the equity interest of former owner William J. Yung III. Under the
plan, holders of secured debt will have their bonds converted into
common stock and general unsecured debt-holders will be given warrants,
interests in a litigation trust and, for certain creditors, cash.
Creditors with voting rights have until April 17 to submit their
ballots. Confirmation hearings by a bankruptcy court are scheduled to
begin April 27.
href='http://www.nytimes.com/aponline/2009/03/24/business/AP-Tropicana-Chapter-11.html?dbk=&pagewanted=print'>Read
more.
Autos
Chrysler Seeks Automatic
Stay Relief in Parts Maker Bankruptcy
Chrysler LLC has asked for relief from an automatic
stay in Precision Parts International Holdings Inc.'s (PPI) chapter 11
proceedings so that it can avoid layoffs and millions of dollars in
losses by taking back production tooling it provided to the auto
supplier,
size='3'>Bankruptcy Law360 reported yesterday.
In its motion filed Monday in the U.S. Bankruptcy Court for the District
of Delaware, Chrysler said that it had reached an agreement with Cerion
LLC to reclaim the tooling when Cerion purchased PPI's assets, but when
Cerion initiated adversary proceedings that delayed the sale, PPI
refused to return the tooling.Chrysler had provided PPI with the tooling
to produce certain component parts, according to the motion. PPI has
since ceased production of those parts and let go of its employees in
that division, but has refused to return the tooling for Chrysler to
send to another supplier, the motion said.
href='http://bankruptcy.law360.com/articles/93551'>Read
more. (Registration required.)
Analysis: Auto Task
Force Set to Back More Loans with a Number of
Conditions
President Barack Obama auto industry task force
indicated that it doesn't want to let General Motors Corp. and Chrysler
LLC slip into bankruptcy protection, but only if there are sacrifices
from their managements, unions and GM's bondholders, the
face='Times New Roman'>Wall
Street Journal reported today. The government
is prepared to lend the companies more money. The two companies have
requested $22 billion more -- including $9 billion for the second
quarter. However, the task force may not disburse new aid immediately,
choosing instead to preserve that as leverage.
href='http://online.wsj.com/article/SB123801450038141147.html#mod=testMod'>Read
more. (Registration required.)
A former Moody's Investors Service credit analyst has
sued the company, alleging he was fired after his call on a bond rating
was trumped by a manager's concern about how much the bond issuer was
paying Moody's, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. Paul Bienstock, a former vice president at the
unit of Moody's Corp., said that he was dismissed after complaining to
Moody's compliance department about his manager, who allegedly withheld
an upgrade for Express Scripts Inc. after arguing that the company
'doesn't pay us.' In his complaint, Bienstock says that on Dec. 4, 2007,
he presented Express Scripts debt to a Moody's committee for an upgrade
from a speculative Ba1 to an investment-grade rating of Baa3, based on
improved company performance.
href='http://online.wsj.com/article/SB123803625823544607.html#mod=testMod'>Read
more. (Registration required.)
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