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September 29,
2008
Federal Bailout
Package
House Set to Vote on Bailout
Package
The House of Representatives is scheduled today to vote on the
$700 billion economic bailout plan that was negotiated over the weekend,
the Washington Post reported today. President Bush this morning
urged lawmakers to act quickly to approve the financial system bailout
plan hammered out over the weekend, acknowledging that the vote will be
'difficult' in the face of opposition from taxpayers and voters, but
necessary to protect the economy. The legislation would authorize
Treasury Secretary Henry M. Paulson Jr. to initiate what is likely to
become the biggest government bailout in U.S. history, allowing him to
spend up to $700 billion to relieve faltering banks and other firms of
bad assets backed by home mortgages. Money for the program would be
released in segments, with the Treasury secretary receiving $250 billion
immediately. Paulson has said that he expects to spend about $50 billion
a month on the program. To protect taxpayers, participating firms would
be required to give the government warrants to buy stock so taxpayers
could benefit if they return to profitability. If the government does
not regain all of its money after five years, the president would be
required to submit a plan for recovering the money 'from entities
benefiting from the program.'
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/09/29/AR2008092900623_pf.html'>Read
more.
href='http://www.washingtonpost.com/wp-srv/politics/documents/bailoutbill_092808.pdf'>Click
here to read the text of the proposed bailout legislation.
/>
The bailout package includes more aggressive steps to help troubled
borrowers keep their homes by requiring the government to do more to
reduce loan balances and interest rates, the Wall Street
Journal reported today.
href='http://online.wsj.com/article/SB122265697254684627.html'>Click
here to read the full story. (Subscription required.)
The draft legislation continues to provide Treasury Secretary Henry M.
Paulson Jr. and his successor extraordinary power to decide how the $700
billion bailout fund is spent, the New York Times reported
today. To be sure, the Treasury secretary's powers have been tempered
since the original Bush administration proposal, which would have given
Paulson nearly unfettered control over the program. There are now two
separate oversight panels involved, one composed of legislators and the
other including regulatory and administration officials.
href='http://www.nytimes.com/2008/09/29/business/29bill.html?ref=business&pagewanted=print'>Read
more.
Experts Urge Congress to Alter
Bankruptcy Rules
Bankruptcy experts testifying before Congress on Friday urged changes in
BAPCPA to increase the survival chances of distressed companies,
CongressDaily reported. In testimony before the House Judiciary
Commercial and Administrative Law Subcommittee, University of Texas law
professor Jay Westbrook said that because the 2005
reform law bill exempted large pools of financial holdings from the
process, the most valuable assets of a firm like Lehman Brothers 'are
walking out the door at the moment a bankruptcy is filed.' New York
bankruptcy attorney Lawrence Gottlieb focused his
criticism of the 2005 law on its provisions giving creditors only a few
months to decide whether to continue lending to a company in bankruptcy
or to pull the plug on financing. Another witness, New York University
of Law Professor Barry Adler, took a dissenting view on the uptick in
bankruptcy liquidations. He said the trend was 'potentially good'
because bankruptcy 'can't fix broken firms' and that attempting to prop
them up might only postpone an inevitable 'day of reckoning.' House
Judiciary Commercial and Administrative Law Subcommittee Chairwoman
Linda Sanchez (D-Calif.) however, said that she found the trend
toward liquidation 'disturbing' and added that although 'some blamed the
overall economic climate ... (and) the credit crunch,' she believed the
2005 law was the 'principal cause' of the phenomenon.
href='http://judiciary.house.gov/hearings/hear_080926.html'>Click
here to read the prepared witness testimony.
Financial Services
Citigroup to Acquire Wachovia
Assets
The Federal Deposit Insurance Corp. announced today that Citigroup Inc.
will acquire the banking operations of Wachovia Corp., the Wall Street
Journal reported. The FDIC said that the deal was reached in concurrence
with it, the Federal Reserve Board and the U.S. Treasury Department.
'There will be no interruption in services and bank customers should
expect business as usual,' FDIC Chairwoman Sheila Bair said. The
agreement means Citigroup will absorb $42 billion in Wachovia losses on
a $312 billion pool of loans. The FDIC said that it will absorb any
losses that go beyond that figure.
href='http://online.wsj.com/article/SB122269141590585467.html'>Read
more. (Subscription required.)
Report: SEC Failed in Oversight of
Bear Stearns
The Securities and Exchange Commission's inspector general said that the
agency failed in its oversight of investment bank Bear Stearns, ignoring
that the company took excessive risks with mortgage-related securities
before its demise, the Washington Post reported on Saturday. In
a review of the agency's supervision of investment banks, inspector
general David Kotz said that the SEC had identified 'numerous, potential
red flags prior to Bear Stearns' collapse . . . but did not take action
to limit these risk factors.' J.P. Morgan Chase bought Bear Stearns last
March after initial emergency funding to keep it operating
failed.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/09/26/AR2008092603489_pf.html'>Read
more.
Washington Mutual Files for
Bankruptcy
Washington Mutual Inc filed for chapter 11 protection from creditors in
U.S. bankruptcy court in Delaware, Reuters reported on Saturday. In the
voluntary petition filed late Friday, the company listed assets of $32.9
billion, and debts of $8.2 billion, putting it in the top 10 largest
U.S. bankruptcy cases ever filed. Bank of New York Mellon, as a trustee
for debtholders, was listed as the company's largest creditor. The
bankruptcy filing is a procedural step, as Washington Mutual was closed
by the U.S. government this week in the largest U.S. bank failure in
history. Its banking assets were sold to JPMorgan Chase & Co for
$1.9 billion.
href='http://news.yahoo.com/s/nm/20080927/bs_nm/us_washingtonmutual_confidence_2=1;_ylt=AlwEf5iXCAHJrCLtHRwMNTab.HQA'>Read
more.
Lehman Unit Shrank $400 Billion
before Bankruptcy
Lehman Brothers Holdings Inc.'s brokerage unit lost more than $400
billion in assets in the months before its parent filed for bankruptcy
protection, according to the trustee overseeing customer accounts,
Bloomberg News reported on Friday. Lehman's holding company filed for
bankruptcy Sept. 15 claiming $639 billion in assets, using
four-month-old data. The wholly owned brokerage unit shrank to less than
$100 billion in assets from $500 billion “a few months ago,”
according to a Sept. 19 court statement by James Giddens, the trustee
overseeing the settling of Lehman brokerage customer accounts by the
Securities Investor Protection Corp. The loss in value was caused by
“changes in the market,” according to Giddens, a partner at
law firm Hughes Hubbard & Reed, who spoke at a bankruptcy court
hearing in Manhattan. The runoff may indicate Lehman's customers,
including many hedge funds, canceled and closed out trades as they began
to doubt the firm's ability to navigate the credit crunch, bankruptcy
analysts and lawyers said.
href='http://www.bloomberg.com/apps/news?pid=20601087=a6eigPY5XGJ8=home'>Read
more.
Renaissance Homes Files for Chapter
11
Luxury home builder Renaissance Custom Homes LLC filed for chapter 11
protection on Thursday, blaming the dismal real estate and credit
markets for its slump, Bankruptcy Law360 reported on Friday.
Renaissance filed its petition in the U.S. Bankruptcy Court for the
District of Oregon, listing estimated assets between $50 and $100
million and a similar amount of liabilities. The Portland, Ore.-based
company filed bankruptcy for three of its companies, including
Renaissance Custom House LLC, Renaissance Development Corp. and the
Lakes at Fishers Landing LLC and asked the court to administer the cases
jointly. The case is In re Renaissance Custom Homes LLC, case
number: 08-35023, in the U.S. Bankruptcy Court for the District of
Oregon. Read
more. (Subscription required.)
Credit Crunch Squeezes
Restaurants
Lenders are tightening credit to restaurant franchisees in a shift that
could make it harder for owners to remodel existing locations and buy
new restaurants, the Wall Street Journal reported today.
General Electric Co.'s GE Capital, a large commercial lender, is
becoming more stringent in pricing and issuing loans for new
franchisees. Some restaurant executives and investment bankers saythat
GE's franchise finance arm has essentially put a hold on new loans.
McDonald's Corp. warned franchisees earlier this month that Bank of
America Corp., another large franchise lender, had tightened lending to
its restaurant owners and that franchisees should find other lenders for
immediate borrowing.
href='http://online.wsj.com/article/SB122264509591283947.html'>Read
more. (Subscription required.)
International
Governments Agree to Rescue
Fortis
Fortis NV, the Dutch-Belgian bank whose roots date to the 1800s, became
the latest target of a government rescue, the Wall Street
Journal reported today. The governments of Belgium, Luxembourg and
the Netherlands, the three countries in which Fortis operates, agreed
late Sunday to inject €11.2 billion ($16.37 billion) into the
bank. The lifeline came after France's BNP Paribas SA and Dutch
financial firm ING Groep NV walked away from talks to acquire the
company over the weekend. Fortis, which operates insurance and retail
banking businesses throughout the wealthy Benelux region, said Monday
that it will sell most of the ABN Amro Holding NV assets it acquired for
€24 billion last year as part of a consortium that included the
U.K.'s Royal Bank of Scotland Group PLC and Spain's Banco Santander. In
total, the consortium paid about €73 billion for ABN Amro on the
top of the market.
href='http://online.wsj.com/article/SB122266850085985181.html'>Read
more. (Subscription required.)