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February 2, 2009
Congressional Hearings to
Examine Bank Liquidity, Financial Regulatory Improvements and TARP
Changes
Two congressional committees will hold a series of
hearings this week looking at improving bank liquidity, changes needed
to the financial regulatory system and potential changes needed to the
TARP program. The House Financial Services committee will hold a two-day
hearing on improving liquidity in the national banking system on Tuesday
and Wednesday. The House Financial ServicesSubcommittee on Capital
Markets, Insurance, and Government Sponsored Enterprises will also hold
a hearing on Wednesday focused on the Madoff Ponzi scheme and regulatory
failures that accompanied it.
href='http://financialservices.house.gov/schedule.html'>Click
here to read more about the House Financial Services
Committee’s hearings this week.
Meanwhile, the Senate Banking Committee will also be
examining potential changes to the financial regulatory system in a
hearing on Wednesday. The Committee will also take a look at potential
changes to the TARP program and oversight of it.
href='http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Home'>Click
here to read more on the Senate Banking Committee’s
upcoming hearings.
Firms Receiving U.S. Aid
Face Pay Curbs
The Obama administration, seeking to improve public
perception of the $700 billion financial rescue, is expected to announce
this week tougher executive-compensation restrictions for some firms
that get government aid, the
face='Times






New
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size='3'>Wall Street Journal reported today.
Officials also are considering splitting off the Troubled Asset Relief
Program from the Treasury and creating an independent entity. The
administration is working on a broad plan to bolster the financial
sector and is expected to soon detail its efforts to help weakened
financial firms. Treasury Secretary Timothy Geithner, possibly later
this week, is expected to give specifics of the administration's plan,
including an effort to help homeowners in danger of foreclosure.
href='http://online.wsj.com/article/SB123353535829037679.html'>Read
more. (Subscription required.)
Analysis: Risks Are Vast in
Revaluation of Assets
As the Obama administration prepares its strategy to
rescue the nation’s banks by buying or guaranteeing troubled
assets on their books, it confronts a central problem of how the assets
should be valued, according to the N
face='Times






New
Roman'
size='3'>ew York Times today. The Treasury
secretary, Timothy F. Geithner, is expected to announce details of the
new plan within weeks. Administration and congressional officials say
that it will give the government flexibility to buy some bad assets and
guarantee others in an effort to have a broad impact but still tailor
the aid for different institutions. While the government is considering
several approaches to helping the banks, including more capital
injections, buying or insuring toxic assets is likely to be a
centerpiece. Determining the right price for these assets is crucial to
success. Placing too low a value would force institutions selling and
others holding similar investments to register crushing losses that
could deplete their capital and make it harder for them to increase
lending.
href='http://www.nytimes.com/2009/02/02/business/economy/02value.html?_r=1&ref=business&pagewanted=print'>Read
more.
Madoff Trustee Seeks $535
Million to Pay Back Investors
The Securities Investor Protection Corp. trustee for
Bernard L. Madoff Investment Securities LLC and two banks have proposed
an agreement under which the banks would wire the trustee $535 million
to bolster recoveries for investors with the financier's firm,
size='3'>Bankruptcy Law360 reported on Friday.
Upon approval by the court, JPMorgan Chase Bank NA would transfer $233.5
million and the Bank of New York transfer $301.4 million to trustee
Irving H. Picard on or before Feb. 6, according to court papers. Picard
and the banks have agreed to terms for the transfer of the funds, and
the U.S. Securities and Exchange Commission has no objection, according
to the stipulations, which also say that Picard intends the funds to be
allocated as customer property and made available for distribution to
customers. A hearing on the matter has been scheduled for Wednesday,
Feb. 4. Read
more. (Subscription required.)
Autos
General Motors, which is borrowing $13.4 billion from
the federal government to remain solvent, is pressing Congress to waive
a tax liability of as much as $7 billion related to the overhaul plan
that it is completing this month, the
face='Times






New
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size='3'>New York Times reported today. The
tax bill, which could be enough to force the company into bankruptcy,
would be a consequence of the terms that the Treasury Department
required as part of the rescue package approved last month by the Bush
administration. In accepting the loans, GM pledged to persuade its
creditors to swap a large chunk of the automaker’s debt for equity
in the company. The equity-for-debt exchange is aimed at ensuring
GM’s viability in the future, but under corporate tax law, the
swap would amount to debt forgiveness and count as income for GM. The
resulting tax bill could take GM’s cash level below the minimum
needed for daily operations.
href='http://www.nytimes.com/2009/02/02/business/02gm.html?ref=business'>Read
more.
Key Plastics' Chapter 11
Plan Approved
Automotive supplier Key Plastics LLC expects to exit
chapter 11 this month with Wayzata Investment Partners LLC as majority
shareholder now that a bankruptcy court has approved its prepackaged
reorganization plan,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported on Friday. Bankruptcy Judge
face='Times New Roman'>Mary F.
Walrath on Thursday confirmed the
debt-for-equity plan and cleared the way for the plastics supplier to
continue a restructuring that has enjoyed overwhelming support from
creditors and largely progressed according to schedule. Under the plan,
Key Plastics will convert $115 million of senior secured debt into
equity and receive a $20 million infusion of new equity investment led
by Wayzata. In order to finance the weeks leading to the restructuring,
Key Plastics will enter into a $25 million exit facility with
Wayzata. Read
more. (Subscription required.)
Chrysler Is Hobbled by
Former Finance Arm
Chrysler LLC's bid to boost vehicle sales and drum up
revenue has run into resistance from its former financing arm, Chrysler
Financial, the
size='3'>Wall Street Journal reported today.
Chrysler Financial was a 'captive' lender, controlled by the auto maker
with the primary mission of helping Chrysler sell cars and trucks, even
if it meant sacrificing profit to do so. However, when Cerberus Capital
Management LP acquired Chrysler in 2007, it split the automaker and the
lending arm into two separate companies, with the intent of turning the
finance business into a money-maker. Since then Chrysler Financial has
been squeezed by the meltdown in financial markets and has focused
increasingly on protecting its own bottom line, often at the expense of
the auto company. Chrysler Financial last summer stopped providing
leases on automobiles and then cut back on auto loans -- moves that,
dealers said, made it harder for Chrysler to lure customers as U.S. auto
sales plummeted.
href='http://online.wsj.com/article/SB123353425298237631.html'>Read
more. (Subscription required.)
Interstate's $105 Million
Financing Deal with GE Approved
Interstate Bakeries Corp. moved one step closer to
exiting more than four years of chapter 11 proceedings on Thursday when
a federal judge approved recent changes to its reorganization plan
related to the terms of a $105 million credit facility to be provided by
General Electric Capital Corp., Bankruptcy Law360 reported on
Friday. After a hearing held Thursday in the U.S. Bankruptcy Court for
the Western District of Missouri, Judge
face='Times






New
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size='3'>Jerry W. Venters signed an order
approving Interstate's amended agreement in principle with GE Capital
over the terms of an asset-based revolving credit financing facility
Interstate says it needs to exit bankruptcy. According to a motion filed
Monday, the debtors have agreed to amend the terms of the facility such
that GE Capital will provide up to $105 million in financing, charge
higher interest rates and underwriting fees and decrease the aggregate
amount of commitments.
href='http://bankruptcy.law360.com/articles/85388'>Read
more. (Subscription required.)
PPG Unit Plans $825 Million
Trust for Asbestos Claims
Roughly nine years after asbestos personal-injury
claims drove Pittsburgh Corning Corp. into chapter 11, the PPG
Industries Inc. subsidiary has filed an amended reorganization plan
proposing the creation of an $825 million trust to settle liability
claims,
size='3'>Bankruptcy Law360 reported on Friday.
PPG proposes to contribute $825 million in cash payments to the trust
over 15 years - much of it secured in a prior settlement arrangement
- as well as roughly 1.4 million shares of PPG stock and its shares
of Pittsburgh Corning and Pittsburgh Corning Europe. The trust will also
receive approximately $1.6 billion from PPG’s insurance carriers,
which will make cash contributions until 2027, PPG says.
href='http://bankruptcy.law360.com/articles/85398'>Read
more. (Subscription required.)
Senators Looking to Make
Changes in Stimulus Plan
The Senate will open debate today on a nearly $900
billion economic stimulus plan that is similar in size and scope to the
package the House passed, creating a possibly smooth path for sending a
bill to President Obama's desk by the mid-February deadline, the
size='3'>Washington Post reported today.
However, senators in both parties hope to alter the legislation,
focusing on easing the housing crisis, increasing infrastructure
spending and cutting taxes on corporations. If many of these changes are
accepted in the Senate, which hopes to finish voting on the plan by
Friday, it could complicate the effort to work out differences between
the two bills. It could also drive the overall cost of the legislation,
which was $819 billion in the House version and is $887 billion in the
Senate plan, much closer to the politically shaky $1 trillion
mark.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/02/01/AR2009020101961_pf.html'>Read
more.
Winds Down, Jobs Become a Hot Commodity at Lehman Bros.
Lehman Brothers, though a shadow of its former self
after selling many of its businesses to Barclays PLC and Nomura Holdings
Inc., retains a broad patchwork of assets and is seen as a relatively
secure home for throngs of finance professionals, the
face='Times New Roman'>Wall
Street Journal reported today. It has some $7
billion in cash and more than 1,400 private investments valued at $12.3
billion. Then there's a thicket of about 500,000 derivative contracts
with 4,000 trading partners worth some $24 billion. It could take two
years or more to wind down the firm. Such a timeline promises the kind
of job security that's a rarity on Wall Street today. Charged with
untangling the mess is Alvarez & Marsal.. With 150 full-time
employees working on the case, its chief task is to sell off Lehman's
remaining assets and maximize recovery for creditors, which are owed
more than $150 billion. CEO Bryan Marsal says the goal is to dissolve
the firm in 18 to 24 months from now, though several restructuring
experts say that's an aggressive timetable.
href='http://online.wsj.com/article/SB123353536455237761.html'>Read
more. (Subscription required.)
Commentary: Don't Push
Banks to Make Bad Loans
There is a widespread belief that banks are now
refusing to lend as much as they should, and that Congress should
pressure them to extend more credit to consumers and businesses,
according to a commentary in today’s
face='Times






New
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size='3'>Wall Street Journal. In reality,
banks as a whole increased their lending during 2008 -- the notion they
haven't is based on a misunderstanding of U.S. credit markets.
Pressuring banks to lend more could backfire. Lost in too many
discussions of the financial sector is that banks and other depository
institutions account for only 22 percent of the credit supplied to the
U.S. economy (down from 40 percent in 1982). 'Shadow banking' -- notably
asset securitization and money-market mutual funds -- now supplies 33
percent (up from 14 percent). Insurance companies, other financial
intermediaries, nonfinancial firms and the rest of the world provide the
balance.
href='http://online.wsj.com/article/SB123353296384237547.html'>Read
more. (Subscription required.)
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