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July 31, 2009
Big Banks Paid Billions in
Bonuses Amid Wall Street Crisis; House Set to Vote on Executive Pay Bill
Today
Thousands of top traders and bankers on Wall Street
were awarded huge bonuses and pay packages last year, even as their
employers were battered by the financial crisis, the
face='Times New Roman'>New York
Times reported today. Nine of the financial
firms that were among the largest recipients of federal bailout money
paid about 5,000 of their traders and bankers bonuses of more than $1
million apiece for 2008, according to a report released yesterday by New
York Attorney General Andrew M. Cuomo. At Goldman Sachs, for example,
bonuses of more than $1 million went to 953 traders and bankers, and
Morgan Stanley awarded seven-figure bonuses to 428 employees. Even at
weaker banks like Citigroup and Bank of America, million-dollar awards
were distributed to hundreds of workers.
href='http://www.nytimes.com/2009/07/31/business/31pay.html?ref=business&pagewanted=print'>Read
more.
In related news, the House of
Representatives House will meet today to vote on H.R.3269, the
'Corporate and Financial Institution Compensation Fairness Act of
2009.'
href='http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h3269rh.txt.pdf'>Click
here to read the legislation.
Regulators Are Getting
Tougher on Banks
Federal regulators have escalated the number of
struggling banks they have essentially put on probation, with some of
the targeted banks complaining that the action is too harsh, the
size='3'>Wall Street Journal reported today.
The Federal Reserve and the Office of the Comptroller of the Currency,
two of the primary U.S. banking regulators, have issued more of the
so-called memorandums of understanding so far this year than they did
for all of 2008. At the current rate of at least 285 so far, the Fed,
OCC and Federal Deposit Insurance Corp.are on track to issue nearly 600
of the secret agreements for the full year, compared with 399 last year.
Memorandums of understanding can force financial institutions to
increase their capital, overhaul management or take other major steps.
Institutions hit with memorandums this year range from giant Bank of
America Corp. to regional bank Colonial BancGroup Inc., based in
Montgomery, Ala., to Berkshire Bancorp Inc., a New York bank with just
12 branches.
href='http://online.wsj.com/article/SB124900956863596085.html'>Read
more. (Subscription required.)
Autos
Delphi Wins Approval to
Exit Bankruptcy
Delphi Corp. won court approval yesterday to sell its
assets to its lenders and General Motors Co., clearing the way for the
auto-parts supplier to end its four-year stay in bankruptcy, the
size='3'>Wall Street Journal reported today.
Under the agreement, GM is acquiring Delphi's steering business in
Saginaw, Mich., as well as four plants in New York, Michigan and
Indiana. The remaining businesses will go to the lenders. 'Noncore
assets' will be sold over time, said
face='Times New Roman' size='3'>Jack Butler,
Delphi's bankruptcy attorney. The lenders' group has agreed to provide
Delphi with $750 million in new financing, Butler said. The Delphi
assets owned by the lenders will continue to be called Delphi, and
Rodney O'Neal will stay on as chief executive, the company said. Delphi
hopes to emerge from bankruptcy protection by the end of the third
quarter.
href='http://online.wsj.com/article/SB124897411664794259.html#mod=testMod'>Read
more. (Subscription required.)
GM Receives Approval of
Union Retiree Benefits Deal
Bankruptcy Judge
face='Times New Roman' size='3'>Robert E. Gerber
size='3'>approved a deal between General Motors Corp. and four unions
over health care and pension benefits primarily for
retirees,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. The four unions involved in the dealswere
the International Association of Machinists and Aerospace Workers, the
International Brotherhood of Electrical Workers, local chapters of the
International Brotherhood of Painters and Allied Trades of the United
States and Canada, and the Michigan Regional Council of Carpenters.GM
was authorized to close a §363 sale of
the bulk of its assets to Vehicle Acquisitions Holdings LLC — the
new company purchasing GM, sponsored by the U.S. Department of the
Treasury — earlier this month.Under the settlements, Vehicle
Acquisitions Holdings will no longer be responsible for covering health
benefits for union retirees as provided on the existing GM hourly
benefit plan as of Jan. 1. Instead, health benefits will be provided
under the Vehicle Acquisitions Holdings' retiree health care plan. Those
benefits will be capped, and union retirees who qualify for Medicare
will not be covered under the new plan.
href='http://bankruptcy.law360.com/articles/114010'>Read
more. (Subscription required.)
Judge Approves Lear to
Tap $500 Million DIP Loan
Bankruptcy Judge
face='Times New Roman' size='3'>Allan L. Gropper
size='3'>yesterday approved $500 million in DIP financing from a group
of lenders led by JPMorgan Chase & Co. for Lear Corp., a bankrupt
supplier of automotive seats and electronics, Dow Jones
face='Times


New
Roman' size='3'>Daily Bankruptcy Review
size='3'>reported today. Two-thirds of the company’s secured
lenders support the financing plan, though it was disputed by the
unsecured creditors’ committee and a group led by QVT Financial
Inc., which had offered a last-minute competing financing proposal. The
unsecured creditors’ committee had sought to delay approval
briefly to consider the competing plan or other proposals that might
arise.
Chassis Asset Sale
The Pension Benefit Guaranty Corp. on Wednesday
objected to Metaldyne Corp.'s plan to sell its principal chassis
operations, saying Metaldyne's proposed sale order appears to allow the
supplier to sell nondebtor assets free and clear of liens,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported yesterday.
“If nondebtors’ assets are sold free and clear of
PBGC’s claims, or the proceeds of the sale are diverted to
debtors’ estates, those proceeds will no longer be available to
help satisfy PBGC’s joint and several claims against debtors and
nondebtors, thereby reducing PBGC’s recovery,” the PBGC
said. If the sale is completed, Metaldyne's pension plan will likely
terminate, the motion says. That plan is likely underfunded by over $150
million, which the PBGC would have to insure, according to the
motion.
href='http://bankruptcy.law360.com/print_article/114098'>Read more.
(Subscription required.)
“Clunkers”
Auto Rebate Plan Exhausts Funds
New-car shoppers appear to have already snapped up all
the $1 billion that Congress appropriated for the “cash for
clunkers” program, leading the Transportation Department to tell
auto dealers yesterday to stop offering the rebates, the
face='Times New Roman'>New York
Times reported today. However, a White House
official said that the program had not been suspended, creating
confusion about its status. The program offers $3,500 to $4,500 for
people who trade in an old car for a new one with higher fuel economy.
The program, formally known as the Car Allowance Rebate System, was
scheduled to be offered until Nov. 1, or as long as the money was
available. However, the program was so successful that it has exhausted
all the money allocated within the first week. Dealers have submitted
applications on behalf of consumers seeking rebates on about a
quarter-million vehicles.
href='http://www.nytimes.com/2009/07/31/business/31clunkers.html?_r=1&hp=&pagewanted=print'>Read
more.
Fees Is Over
Despite public anger and political pressure, U.S.
banks have been busy raising a variety of fees charged to customers,
the
size='3'>Wall Street Journal reported today.
The upward trend in fees reflects pressure on bank executives nationwide
to turn in profits -- or at least minimize losses -- as loans to
homeowners and businesses turn sour. Bank of America Corp., which got
more than $45 billion in taxpayer-funded support from the Treasury
Department, boosted the monthly maintenance fee for its MyAccess
checking account to $8.95 from $5.95. The bank also has raised its fee
for credit-card balance transfers from 3 percent to 4 percent. San
Francisco-based Wells Fargo and J.P. Morgan of New York have passed
along higher costs for deposit insurance charged by the Federal Deposit
Insurance Corp. to some business customers.
href='http://online.wsj.com/article/SB124899068710295093.html#mod=article-outset-box'>Read
more. (Subscription required.)
Lehman Bros. Bankruptcy
Creditor Objects to
Lehman's $625 Million Aurora Deal
Elliott Management Corp. objected to Lehman Brothers
Holdings Inc.'s move to provide an additional $625 million in financing
to its subsidiary Aurora Bank FSB, claiming that the bankrupt financial
services giant has provided little information justifying the
potentially risky investment,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. Elliott, one of LBHI's largest creditors,
challenged the firm's bid to loan the bank an additional $125 million
and provide it with a new $500 million revolving loan facility, in an
objection filed on Wednesday. Bankruptcy Judge
face='Times New Roman'>James M. Peck in March signed
off on a $325 million mortgage loan purchase plan in order to provide a
temporary cash injection to Aurora Bank, formerly known as Lehman
Brothers Banks FSB, and its mortgage loan servicing subsidiary, Aurora
Loan Services LLC. The hedge fund, along with several affiliates —
Elliott Associates LP, Elliott International LP, The Liverpool LP,
Springfield Associates LLC and Kensington International Ltd. —
contends that the new proposal is “less favorable and less
secure” than the current agreement and lacks critical
disclosures.
href='http://bankruptcy.law360.com/articles/114060'>Read
more. (Subscription required.)
American Home Bid to
Revive Lehman Suit Fails
U.S. District Court Judge Joseph J. Farnan Jr. blocked
an attempt by bankrupt lender American Home Mortgage Holdings Inc. to
appeal a dismissal of a suit against Lehman Brothers Holdings Inc.
alleging that the defunct investment bank violated an automatic stay by
foreclosing on a securities repurchase agreement,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported yesterday.
According to the opinion, American Home had asked the district court to
directly certify an appeal of the dismissal to the U.S. Court of Appeals
for the Third Circuit on the basis that the decision raised issues of
first impression in the circuit, that it had ramifications for
agreements used throughout global financial markets and that it might
allow American Home to recover claims involving other similar
agreements. However, Lehman Brothers Holdings and affiliate Lehman
Commercial Paper Inc. contended that the issues raised in the decision
were questions of fact, not law, and did not affect a broad range of
debtors, the opinion said. Siding with Lehman, the judge found that the
issues linked to the decision were “mixed questions that implicate
the particular circumstance of this case, and as such, they are not pure
legal questions warranting direct certification.”
href='http://bankruptcy.law360.com/articles/114164'>Read more.
(Subscription required.)
Billions in Lehman
Claims Could Bury an Elusive Insurer
Officials at the New York State Insurance Department
are concerned about the Customer Asset Protection Co.’s (Capco)
ability to withstand the Lehman bankruptcy, the largest in history,
the
size='3'>New York Times reported today. By
some industry estimates reviewed by the insurance department, Capco
could face nearly $11 billion in claims but has only about $150 million
with which to meet them. The state is examining whether the company sold
policies without the means to cover them. Capco was created in 2003 by
Lehman and 13 other banks and brokerage companies as a kind of marketing
tool. The pitch was that while Capco would not insure customers against
investment losses, it would compensate them if the firms failed. Capco
promises to provide virtually unlimited coverage above the $500,000
offered by the Securities Investors Protection Corporation and its
equivalent in Britain. Some former Lehman clients, which include big
hedge funds, are looking to Capco for answers and payouts. Since it
stopped writing policies on Feb. 16, most of Capco’s owners,
including Morgan Stanley, Goldman Sachs, JPMorgan Chase, Wells Fargo,
Robert W. Baird & Co., Edward Jones, and Fidelity, have purchased
account protection for their clients through private insurance companies
href='http://www.nytimes.com/2009/07/31/business/31insure.html?ref=business&pagewanted=print'>Read
more.
Seen at AIG
The dozens of insurance companies that make up the
American International Group show signs of considerable weakness even
after their corporate parent got the biggest bailout in history,
the
size='3'>New York Times reported today. While
state commissioners are supposed to keep insurers from writing new
policies if there is any doubt that they can cover their claims,
regulators in AIG’s case are eager for the insurers to keep
writing new business because they see it as the best hope of paying back
taxpayers. State regulatory filings show that AIG’s individual
insurance companies have been doing an unusual volume of business with
each other for many years — investing in each other’s
stocks; borrowing from each other’s investment portfolios; and
guaranteeing each other’s insurance policies, even when they have
lacked the means to make good. Insurance examiners working for the
states have occasionally flagged these activities, to little effect.
Many of AIG’s insurance companies have reduced their own exposure
by sending their risks to other companies, often under the same AIG
umbrella. The company said that the interdependency of its businesses
posed no problem and strongly disputed that any units had obligations
they could not pay.
href='http://www.nytimes.com/2009/07/31/business/31aig.html?ref=business'>Read
more.
Southwest Airlines Set to
Make a Counteroffer for Frontier
Southwest Airlines said yesterday that it was
preparing a bid, valued at a minimum of $113.6 million, for its low-fare
rival Frontier Airlines, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. The Southwest bid potentially tops a $108.8
million offer for Frontier, which sought bankruptcy protection in April
2008, made by Republic Airways in late June. That offer received
tentative court approval on July 13. Frontier confirmed that it had been
notified of Southwest’s initial, nonbinding bid. The deadline for
bids is Aug. 10, and an auction for the airline’s assets could be
held the next day.
href='http://www.nytimes.com/2009/07/31/business/31air.html?ref=business&pagewanted=print'>Read
more.
Fannie, Freddie Unlikely
to Return Federal Aid
The regulator of Fannie Mae and Freddie Mac said that
it was unlikely that the federal government would ever be paid back the
entire $85 billion spent so far on bailing out the firmsand added that
the cost was going to rise as additional funds are drawn, the
size='3'>Washington Post reported today. The
government seized District-based Fannie Mae and McLean-based Freddie
Mac, the nation's two major providers of money for home loans, nearly 11
months ago as the economic crisis intensified.The Bush administration
committed $200 billion to keep them solvent, a figure the Obama
administration doubled when signs appeared that the companies were
eating through that cushion at a faster-than-expected pace.The
companies, which own or insure more than $5 trillion in home loans,
won't stop losing money for another year or so, said James Lockhart,
director of the Federal Housing Finance Agency.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/30/AR2009073003937_pf.html'>Read
more.
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