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November
2, 2007
name='1'>Credit Card Issuers Prepare for Effects of Subprime
Mortgage Meltdown
Experts are saying that
the credit card industry should know within a year whether the subprime
mortgage crisis will create new problems in the credit markets,
according to a report in the November edition of
face='Times New Roman' size='3'>Collections and Credit Risk
magazine. As more people struggle to make ends meet,
credit card issuers could face greater exposure to losses next year,
analysts say. “Most credit card issuers with healthy portfolios
have about 5 to 6 percent of subprime customers in there along with the
prime and super-prime customers,” said Robert Hammer, president of
the credit card advisory firm R.K. Hammer Investment Bankers. They
“extend enough credit capacity to customers to drive charge volume
without risking more charge-offs,” Hammer added. Despite ongoing
concerns, the subprime mortgage market’s difficulties actually
could be a boon to credit card issuers. The decline in real estate
values mean fewer banks will be extending home-equity loans to
consumers, which could create fresh consumer credit demand among prime
borrowers. “A lot of the troubles facing the mortgage industry are
based on the fact that they didn’t learn the lessons the card
industry learned in the 1980s and afterward, when there were heavy
losses due to poor underwriting standards,” said Scott Strumello,
an associate with Auriemma Consulting Group. Data from January 2003
through the end of 2006 show that subprime consumers are a month or more
delinquent on mortgage debt than on credit card debt.
Deals with Hedge Funds May
Be Helping Merrill Delay Mortgage Losses
Merrill Lynch & Co.,
in a bid to slash its exposure to risky mortgage-backed securities, has
engaged in deals with hedge funds that may have been designed to delay
the day of reckoning on losses, the
size='3'>Wall Street Journal reported today.
The transactions are among the issues likely to be examined by the
Securities and Exchange Commission. The SEC is looking into how the Wall
Street firm has been valuing, or 'marking,' its mortgage securities and
how it has disclosed its positions to investors, a person familiar with
the probe said. Regulators are scrutinizing whether Merrill knew its
mortgage-related problem was bigger than what it indicated to investors
throughout the summer.
href='http://online.wsj.com/article/SB119396956371280131.html?mod=hpp_us_whats_news'>Read
more. (Registration required.)
name='3'>Global Power's Disclosure Statement Approved
Bankruptcy Judge
size='3'>Brendan L. Shannon approved Global
Power Equipment Group Inc.’s disclosure statement on Wednesday,
setting the stage for the company to exit from bankruptcy by the end of
2007,
size='3'>Bankruptcy Law360 reported yesterday.
Judge Shannon also entered an order approving the plan support agreement
between the debtors, their unsecured creditors' and equity
security-holders' committees, and Global Power's 4.25 percent
convertible senior subordinated noteholders. Global Power is now
soliciting support for its reorganization plan, which is scheduled to
come up for a confirmation hearing on Dec. 20.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=39017'>Read
more. (Registration required.)
w:st='on'>
name='4'>San Diego
face='Times New Roman' size='3'> Diocese Bankruptcy Case
Closes
The San Diego Catholic
diocese's eight-month-old bankruptcy case drew to a close yesterday as
Bankruptcy Judge Louise
DeCarl Adler dismissed the case and scolded
the church for being “disingenuous” in reporting its
finances to parishioners as part of a campaign to fund a $198 million
settlement with victims of sexual abuse,
size='3'>the San Diego Union-Tribune reported
today. “Chapter 11 is not supposed to be a vehicle, a method, to
hammer down the claims of those abused,” she said. Judge Adler had
planned to grant the diocese's request to dismiss the bankruptcy without
comment, but she said she recieved a packet in the mail from her former
parish asking to help pay the settlement that she thought was less than
candid about the diocese finances. Judge Adler said that there is ample
property the church could sell or mortgage to fund the settlement,
citing parking lots, houses and other holdings listed in court
documents.
href='http://www.signonsandiego.com/news/metro/20071102-9999-1n2diocese.html'>Read
more.
IRS
Seeks $1.6 Billion from Bankrupt NY Racing Association
The Internal Revenue
Service is seeking $1.6 billion in taxes and penalties from the bankrupt
New York Racing Association, a major hurdle for the group's bid to exit
chapter 11, the Associated Press reported yesterday. NYRA, which owns
and operates the three biggest race tracks in
w:st='on'>
York state, said in a
filing on Tuesday that it owes the IRS no more than $5 million. NYRA
wants the bankruptcy court overseeing its chapter 11 case to intervene
in the dispute and estimate the amount it owes the government. The
agency, which has run thoroughbred horse racing in
w:st='on'>New
York
at Aqueduct,
size='3'>Belmont
face='Times New Roman' size='3'>Park
size='3'>and
face='Times New
Roman'
size='3'>Saratoga
claim dwarfs NYRA's total assets, which according to its November 2006
bankruptcy filing were $153.3 million. A hearing on NYRA's bid for
Bankruptcy Judge James
Peck to estimate the claim is scheduled for
Nov. 28.
href='http://biz.yahoo.com/ap/071101/ny_racing_association_bankruptcy.html?.v=1'>Read
more.
Bank
Wants Additional $2.7 Million Payment from Enron
Standard Chartered Bank
is demanding that Enron Corp.'s bankruptcy estate pay it an additional
$2.7 million on top of the $24.5 million the bank has already received
as part of a settlement, the Associated Press reported yesterday. The
British bank asked the U.S. Bankruptcy Court in
w:st='on'>
size='3'>Manhattan
Enron to pay the money, which covers claims the bank has against three
other Enron entities, according to court documents filed Wednesday.
Standard Chartered Bank was part of a syndicate of banks that loaned
money to Enron, now known as Enron Creditors Recovery Corp. Under a 2005
agreement, the bank received a $24.5 million claim against Enron Corp.
However, the bank says that the agreement didn't apply to its claims
against the other entities that borrowed money from the bank: Enron
North America Corp., Enron Power Marketing Inc. and EPC Estate Services
Inc.
href='http://biz.yahoo.com/ap/071101/enron_bankruptcy.html?.v=1'>Read
more.
name='7'>Chrysler to Cut 11,000 Jobs
Chrysler announced
yesterday that it would eliminate 11,000 hourly and salaried jobs in
the
size='3'>United States
size='3'>and
w:st='on'>
size='3'>Canada
and cut shifts of workers at five plants, the
face='Times New Roman' size='3'>New York
Times reported today. The decision comes on
top of a plan, announced in February, to eliminate 13,000 jobs and close
a factory in
face='Times New Roman' size='3'>Newark
size='3'>,
size='3'>Del.
together, Chrysler will be reducing its 2006 workforce of about 80,000
employees by 30 percent. Chrysler’s new chief executive, Robert L.
Nardelli, blamed sagging auto sales for the company’s steps.
Chrysler developed its earlier plan in a stronger car market, Nardelli
said, while still under the wing of Daimler, its former German parent.
General Motors also recently said that it would eliminate shifts at
three assembly plants in
w:st='on'>
size='3'>Michigan
moves, announced after GM union workers approved their new contract,
will most likely cut 3,000 jobs, though GM has not confirmed the
total.
href='http://www.nytimes.com/2007/11/02/business/02auto.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
IRS
Steps Up Tax Probe of Hedge, Buyout Firms
The Internal Revenue
Service, heightening a probe of the financial industry, is examining
whether hedge funds and private-equity firms improperly avoided paying
taxes, the Wall Street
Journal reported today. The IRS said that it
is seeking to 'identify any areas of possible noncompliance in the
income tax reporting of hedge fund and private equity fund investors and
managers.' The IRS identified, among other areas, potential abuses in
financial firms paying withholding taxes. A number of hedge funds said
that they haven't received requests for information from the IRS, but
the agency has asked securities firms for data relating to clients and
their trading activities. The IRS identified several areas of focus,
including whether hedge funds and private-equity firms and their
managers are failing to file or are filing tax returns improperly;
whether managers improperly are classifying income as more lightly taxed
capital gains rather than ordinary income; whether funds are recognizing
income properly; and whether funds are using offshore entities to
circumvent income taxes.
href='http://online.wsj.com/article/SB119396428600079958.html?mod=hpp_us_whats_news'>Read
more. (Registration required.)
name='9'>Student Loan Industry Faces New Rules from Education
Dept.
U.S. Education Secretary
Margaret Spellings announced yesterday an overhaul of rules governing
the student loan industry, including measures prohibiting lenders from
offering schools gifts in exchange for business and a mandate that each
university include at least three companies on its preferred lender
list, the Washington
Post reported yesterday. The new regulations,
which will be released today and go into effect in July, were crafted in
response to criticism that the department has not provided adequate
oversight of the $85 billion-a-year industry. Federal education
officials also said that the department has sent letters to 921 colleges
and universities nationwide seeking details on their relationships with
lenders. The letters, mailed in July, were sent to institutions at which
more than 80 percent of loans are handled by a single lender. A second
set of letters was sent to 55 schools and 23 lenders in October.
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/10/31/AR2007103102878_pf.html'>Read
more.
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/10/31/AR2007103102878_pf.html'>