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December 30,
2009
size='3'>Axiant Receives Approval to Convert Case
to Chapter 7
Bankruptcy Judge
face='Times New Roman' size='3'>Mary F. Walrath on
Monday approved AxiantLLC’s request to convert its case from a
chapter 11 proceeding to a chapter 7 after the company was unable to
find a buyer, according to the
size='3'>Deal Pipeline yesterday. The debtor's
stalking-horse bidder, NCO Group Inc., an accounts receivable
outsourcing provider, terminated its $7 million stalking-horse bid
agreement on Dec. 7, and the debtor hasn't been able to find another
buyer since. Axiant and its advisers have determined that it is unlikely
a buyer would come forward if an auction were held. Axiant filed for
chapter 11 on Nov. 20 after it was forced to trim its employees to only
50 from 1,069 when it filed for bankruptcy. The company said a decline
in key customers and a reduction in collection rates caused its cash
flow to decrease significantly in 2008 and 2009.
href='http://pipeline.thedeal.com/tdd/ViewArticle.dl?id=10005371111'>Read
more. (Subscription required.)
Lawsuit Claims Bank Knew
Mortgage-Related Investments Were Bad
The investment giant Morgan Stanley has been sued by a
Virgin Islands pension fund that accused the bank of defrauding
investors by marketing $1.2 billion of risky mortgage-related notes that
it expected to fail, Reuters reported yesterday. The lawsuit filed on
Dec. 24 in a Manhattan federal court accused Morgan Stanley of
collaborating with the credit rating agencies Moody’s Investors
Service and Standard & Poor’s to obtain triple-A ratings for
notes sold in 2007 as part of a collateralized debt obligation (CDO)
known as Libertas. According to the complaint, the CDO was backed by
low-quality assets, including securities issued by the subprime lenders
New Century Financial Corp., which quickly went bankrupt, and Option One
Mortgage, then owned by H&R Block. Many banks face lawsuits from
investors who say that they were misled into investing in securities
they believed were safe but that were in fact tied to risky subprime
mortgages.
href='http://www.nytimes.com/2009/12/30/business/30virgin.html?_r=1&ref=business&pagewanted=print'>Read
more.
GMAC Expected to Receive
Another Government Cash Infusion
GMAC Financial Services is close to getting
approximately $3.5 billion in additional aid from the U.S. government,
on top of $12.5 billion already received since December 2008, the
size='3'>Wall Street Journal reported today.
The cleanup is designed to return the Detroit-based finance company to
profitability in the first quarter of 2010. GMAC was told to raise
additional capital as part of government-led stress tests of large banks
conducted earlier this year. GMAC has only filled a portion of its
capital hole and, unlike other banks that participated in the stress
tests, has been unable to attract much capital from private investors.
The Treasury said earlier this year that it would make as much money
available to GMAC as needed to fill its capital hole and projected the
firm would need another government infusion of as much as $5.6 billion.
GMAC's capital needs have turned out to be somewhat less than originally
envisioned, in part because impact from the bankruptcies of General
Motors Corp. and Chrysler Corp. was not as severe as federal regulators
originally projected.
href='http://online.wsj.com/article/SB10001424052748704234304574626613952095966.html?mod=WSJ_hps_LEFTWhatsNews'>Read
more. (Subscription required.)
Analysis: AIG Executives
Struggled for Answers Amid Crisis
When the Financial Products unit that made AIG
billions of dollars in the largely unregulated world of financial
derivatives began to deflate in 2007, AIG executives found themselves in
a financial fog as one of the world's most successful companies began
its descent to the epicenter of last year's financial collapse,
according to an analysis in today’s
face='Times
New
Roman' size='3'>Washington Post. AIG
executives in 2007 offered data showing that the firm's exposure to the
deteriorating mortgage market did not represent undue risk to AIG. Their
bottom line: Financial Products' derivatives-based portfolio was
'largely immune to principal loss,” according to internal AIG
e-mails and materials examined by the
face='Times New



Roman'
size='3'>Washington Post. A key element of the
debate inside AIG before the crash involved the accuracy of complex
mathematical models that Financial Products had developed to assess the
risk of deals involving credit-default swaps. The swaps, which were
private contracts that were not listed on any exchange, essentially
worked like insurance in case of default. For a hefty fee, Financial
Products would insure certain forms of debt, including portions of
exotic mortgage-backed securities, which were fueling the real estate
boom.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/12/29/AR2009122903322_pf.html'>Read
more.
Bank-Stock Rallies
The Federal Deposit Insurance Corp. next year will ask
bidders for some seized banks to offer the agency a chance to profit if
the deal is well-received by the buyer's shareholders, the
face='Times New Roman'>Wall
Street Journal reported today. The strategy
comes after the FDIC collected $23.3 million this month from New York
Community Bancorp Inc. as part of the regional bank's recent acquisition
of AmTrust Bank, a Cleveland thrift that failed. The purchase included
an unusual financial provision inserted by New York Community to give it
an edge over rival bidders. The provision entitled the FDIC to reap
gains from a rally in New York Community's stock price after it
announced the AmTrust purchase. The mechanism paid off for the
government when New York Community's stock price rallied more than 16
percent in the two weeks after the deal, which will substantially expand
the regional bank's deposit base.The FDIC is now embracing that
provision, which is a variation of a mechanism that it used in the
1980s, because shares of a number of banks recently have rallied after
the purchase of a failed institution.
href='http://online.wsj.com/article/SB10001424052748704234304574626153895931822.html?mod=WSJ_newsreel_business'>Read
more. (Subscription required.)
Fannie, Freddie
The government's move to ease the limits on the
securities holdings of Fannie Mae and Freddie Mac has ignited a debate
among analysts about what the companies will do with the relaxed
regulations, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today.When the Treasury Department took over Fannie
and Freddie last year, one of the requirements they set for the
companies required them to begin shrinking their portfolios of mortgages
and related investments, which total a combined $1.5 trillion. However,
the Treasury last Thursday eased that requirement, meaning that the
companies won't be forced to sell mortgages next year into an already
weak market and could even buy mortgages on the market, which could help
hold down interest rates. The Treasury also suspended for the next three
years the $400 billion cap on the bailout subsidy that the government
will offer. That could give Fannie and Freddie more flexibility to
modify mortgages without worrying about taking losses.
href='http://online.wsj.com/article/SB10001424052748704234304574626630520798314.html'>Read
more. (Subscription required.)
Lehman Europe Clients Back
Payback Plan
Former clients of Lehman Brothers' European operations
voted in favor of a plan to speed up the return of about $11 billion in
frozen client assets, the collapsed bank's European administrator said
yesterday, according to a report in today’s
face='Times New Roman'>Wall
Street Journal. The administrator,
PricewaterhouseCoopers (PwC), said more than 90 percent of the bank's
former clients voted for the plan, a multilateral contract known as a
claim-resolution agreement. The agreement governs the basis on which the
administrators can return the assets. The former clients, who number
about 1,000 and are mainly hedge funds, must now file their claims for
the frozen assets by March 19. PwC said it anticipates it will begin
distributing the assets shortly after the deadline. When PwC was
appointed as administrator on Sept. 15, 2008, Lehman's European arm held
$32 billion in client assets. Since that date, $13.3 billion has been
returned via bilateral agreements. Lehman's collapse caused nearly 80
Lehman subsidiaries worldwide to fold.
href='http://online.wsj.com/article/SB10001424052748703510304574626210736343076.html'>Read
more. (Subscription required.)
GM May Wait Until New Year
to Decide Saab’s Future
General Motors Co. is prepared to wait beyond the end
of this week before deciding on the future of the Saab brand as it
reviews remaining bids, Bloomberg News reported today. Nearly 3,500 Saab
jobs are at risk, along with thousands of positions among suppliers to
the automotive industry in Sweden. Two attempts to sell the 72-year-old
brand failed in the past five weeks and since then GM has said it
received inquiries from “several parties.” The brand is
among four being sold or shut as GM focuses on Chevrolet, Buick, GMC and
Cadillac after its July 10 bankruptcy exit. Talks with GM are now
focusing on two suitors: Merbanco Inc., the Wyoming-based group that
revised its bid after bringing in Swedish investors, and Zeewolde,
Netherlands-based Spyker.
href='http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ajNz.bPXNvVs'>Read
more.
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