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July 8, 2008
Fed, SEC Team Up on Bank Oversight
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Leaders of the Federal Reserve and the Securities and Exchange
Commission signed a memorandum of understanding to build a new system to
guard against a meltdown of the financial system, the Washington Post
reported today. The SEC-Fed agreement came about because of what
happened in March when the Fed agreed to make an emergency loan to Bear
Stearns, which otherwise would have filed for bankruptcy, and then gave
financial backing to the acquisition of Bear Stearns two days later. The
Fed also made loans available to all investment banks, to prevent the
run on the bank that enveloped Bear Stearns from bringing down other
major firms. As it made those loans, leaders of the Fed insisted they
get new access to the inner workings of the investment firms so as to be
sure that their loans would be paid back. New York Fed employees have
been working alongside SEC regulators in the large banks since March,
doing just such monitoring. According to the new agreement, the SEC will
provide the Fed with 'information and analysis regarding the financial
condition, risk management systems, internal controls and capital,
liquidity and funding resources' of the firms it oversees, and the Fed
will do likewise for the SEC.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/07/07/AR2008070702460_pf.html'>Read
more.
Mortgage Giants Take Stock Hits on
Fears over Loan Defaults
Investors dumped shares and bonds of Fannie Mae and Freddie Mac,
signaling a dramatic loss of confidence in two government-sponsored
mortgage companies considered crucial to restoring the health of the
housing market, the Wall Street Journal reported today. Shares
of the two companies dropped Monday to their lowest levels in more than
14 years, and at one point, Freddie Mac had lost nearly 30 percent of
its value. Another mortgage lender, IndyMac Bancorp Inc., was showing
the financial difficulty now being experienced by the lenders by
announcing yesterday that it will stop making most types of home loans.
IndyMac specialized in loans for borrowers who didn't fully document
their income or assets. However, it has suffered from soaring losses on
these loans and couldn't raise additional capital. Monday's move will
force IndyMac to eliminate 3,800 of its 7,200 jobs.
href='http://online.wsj.com/article_print/SB121547387567934027.html'>Read
more. (Registration required.)
Housing Assistance Bill Inches Ahead
In Senate
The Senate took another step yesterday toward passage of a
housing-recovery bill by voting 76-10 to invoke cloture on the second of
three portions of the measure, CongressDaily reported today.
The entire package made up of different amendments requiring three
separate votes for approval. The chamber voted 79-16 on June 25 to
approve the first section of the measure, comprising the main portion of
the bill. By invoking cloture on the second portion of the package, the
Senate will attempt again to pass the measure if it can resolve a
dispute between Majority Leader Harry Reid (D-Nev.) and Sen. John Ensign
(R-Nev.) over renewable energy.
Bank Makes New Bid to Dismiss $550
Million Suit by Sentinel Management's Trustee
Bank of New York has appealed to a bankruptcy court to reconsider its
request to dismiss the $550 million lawsuit filed by the chapter 11
trustee of money manager Sentinel Management Group, Bankruptcy
Law360 reported yesterday. The appeal questions whether certain
requirements of the Commodity Exchange Act could be applied to an entity
that was “registered, but admittedly not functioning” as a
futures commission merchant. The appeal also questions whether
violations of the Act could be brought by a trustee who has no private
right of action. The chapter 11 trustee, Frederick J. Grede, sued BoNY
in March, alleging that the bank created accounts for Sentinel that
allowed the firm to commingle customers' assets with its own holdings
and use those assets as security for a loan Sentinel had obtained from
the bank. The adversary proceeding also alleges that Bank of New York
aided Sentinel executives in breaching their fiduciary duty.
href='http://bankruptcy.law360.com/secure/printview.aspx?id=61309'>Read
more. (Registration required.)
Michael Vick Seeks Bankruptcy after
Dogfighting Plea
Michael D. Vick, the former NFL quarterback serving a 23-month federal
prison sentence, filed for bankruptcy protection seven months after he
was sentenced for plotting to run an interstate dogfighting ring,
Bloomberg News reported today. Vick cited debts of $10 million to $50
million in chapter 11 papers filed yesterday in U.S. Bankruptcy Court in
Newport News, Va. He listed assets valued at between $10 million and $50
million. Vick pleaded guilty to conspiracy to travel in interstate
commerce in aid of unlawful activities and to sponsor a dog in an
animal-fighting venture. He is due to be released from the U.S.
penitentiary in Leavenworth, Kan., in about a year, according to court
papers.
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=aWr5RLnTnb.U&refer=us'>Read
more.
Ninth Circuit Allows GE Unit to Seek
Default Interest
A federal appeals court has found that a bankruptcy court applied the
wrong rule when it concluded that a bankrupt disk replication firm did
not have to pay default interest and attorneys' fees to a General
Electric Co. finance unit, Bankruptcy Law360 reported
yesterday. The U.S. Court of Appeals for the Ninth Circuit reversed the
bankruptcy court's denial of GE Capital Corp.'s bid for interest and
fees in Future Media Productions Inc.'s chapter 11 case. It remanded the
case, ordering the bankruptcy judge to first apply a rule adopted by
most federal courts regarding default interest and then determine if an
award of attorneys' fees is appropriate. GE Capital, an oversecured
creditor in the bankruptcy case, agreed in August 2004 to provide Future
Media with a $10.5 million loan, plus a $5 million revolving line of
credit. The agreement called for a higher interest rate if the company
defaulted on paying the loan, and obligated Future Media to pay
attorneys' fees and costs in connection with any dispute over the loan
deal.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=61274'>Read
more. (Registration required.)
Syntax-Brillian Files for Chapter
11
Television and digital camera maker Syntax-Brillian Corp.,
which has been plagued by management changes, delayed results and weak
sales, filed for chapter 11 protection today, Reuters reported. The
company, which sells the Olevia brand of LCD TVs, sought protection from
creditors with the U.S. Bankruptcy Court in Delaware. Syntax-Brillian
also entered into a deal to sell certain of its assets to a newly
created company called Olevia International Group LLC, which has agreed
to assume $60 million of Syntax-Brillian's secured debt. The chapter 11
filing includes all of the company's units except digital camera unit
Vivitar, which the company plans to sell.
AirTran Airways to Cut 5 Percent of
Workforce
AirTran Holdings Inc., following across-the-board pay cuts at
its airline last week, said that it would eliminate 480 pilot and
flight-attendant jobs in September, the Wall Street Journal
reported today. The cuts of about 5 percent of AirTran Airways'
workforce are largely in line with planned reductions in seat capacity
by the end of the year, as the airline grounds aircraft and cuts service
on its least-profitable routes. The airline, like other carriers, is
looking for ways to lower costs and raise fares in light of high fuel
prices.
href='http://online.wsj.com/article/SB121546308924533485.html?mod=us_business_whats_news'>Read
more. (Registration required.)
International
Canada Workers Get New Protection
in Corporate Bankruptcy Cases
Canadian Labor Minister Jean-Pierre Blackburn said that employees of
Canadian companies that have declared bankruptcy will get compensation
for unpaid wages under a new government program that went into effect
yesterday, Reuters reported yesterday. The Wage Earner Protection
Program will cost the federal government an estimated C$35 million
($34.3 million) a year. The cost could rise if the economy turns sour,
and the payouts are indexed to inflation. About 10,000 to 20,000 workers
in companies that have declared bankruptcy file claims for unpaid wages
each year. Three-quarters of them never receive any payment, and those
who do receive about 13 cents for every dollar owed, according to
Blackburn. The program would pay eligible workers an amount up to about
C$3,162 over four weeks and then seek to recover the money from the
employer.
href='http://news.yahoo.com/s/nm/20080707/wl_canada_nm/canada_labor_col_2'>Read
more.