August 142007

 

w:st='on'>
size='3'>
name='1'>U.S. Banks
Tightening Mortgage Standards

The Federal Reserve
reported yesterday that
w:st='on'>
size='3'>U.S.
size='3'>banks continued to tighten their standards for approving
mortgage loans in the spring and early summer months, MarketWatch.com
reported yesterday. In particular, banks were imposing tougher standards

before they'll approve subprime and nontraditional mortgages. But even
the borrowers with the best credit were facing tougher standards at some

banks. In the three months ending in July, 56 percent of the 16 banks
that make subprime loans toughened their standards. 
size='3'>The survey found that 40 percent of banks raised standards for
obtaining a nontraditional mortgage, compared with 46 percent in the
first three months of the year.

size='3'>Meanwhile, 14.3 percent of banks made it harder to get a prime
mortgage loan, compared with 15 percent in the first quarter. The Fed
also said 25 percent of banks surveyed raised standards for getting a
commercial real estate loan. 

href='http://www.marketwatch.com/news/story/story.aspx?guid=%7B52266A3C%2D1D06%2D4BF9%2D8D62%2DB01DA10E3588%7D&siteid=rss'>Read

more.

href='http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200708/default.htm'>Click

here to read the Fed’s loan survey.

name='2'>Commentary: Higher Taxes a Factor in
Bankruptcies

Though consumer household

income only rose 75 percent, and expenditures for mortgages, car and
health insurance rose by even less than that from the 1970s to the
present, consumers' tax bills increased by $13,086, an increase of 140
percent, according to a commentary in today’s
face='Times New Roman' size='3'>Wall Street Journal
size='3'>. This is contradictory to liberal scholars who have argued
that bankruptcies will increase soon as a result of new stresses on
American households, such as those posed by rising health care costs and

higher mortgage payments for increasingly expensive homes. These new
expenses strain the family budget, leaving less discretionary income
available to save and to meet other household expenses, and forcing
mothers into the workforce. Overall, the typical family in the 2000s
pays substantially more in taxes than the combined expenses of their
mortgage, automobile and health insurance. And the change in the tax
obligation is substantially greater than the change in mortgage,
automobile expenses and health insurance costs combined. 

href='http://online.wsj.com/article/SB118705537958296783.html?mod=opinion_main_commentaries'>Read

more. (Registration required.)

Subprime
Lending

name='3'>Aegis Mortgage Files for Bankruptcy

The Aegis Mortgage Corp.,

a subprime lender based in
w:st='on'>
size='3'>Houston, filed for

bankruptcy protection yesterday, joining a growing list of companies
hurt by investors’ unwillingness to finance home loans for
borrowers with poor repayment histories, Bloomberg News reported today.
The company said that it owed more than $100 million to creditors,
including some of the investment banks that until this year financed
many loans to subprime borrowers. The petition, listing more than $100
million in assets to pay as many as 5,000 creditors, was filed in
Federal Bankruptcy Court in Wilmington, Del. Aegis is 81 percent owned
by an affiliate of the New York hedge fund manager Cerberus Capital
Management, according to a bankruptcy court filing. Among Aegis’s
largest creditors are units of Morgan Stanley, owed $16 million, and
Countrywide Financial Corporation, the biggest American mortgage lender,

owed $14.3 million. 

href='http://www.nytimes.com/2007/08/14/business/14subprime.html?pagewanted=print'>Read

more.

name='4'>Subprime Lender Is Suing Suitor Who Backed Out of
Deal

Subprime mortgage lender
Accredited Home Lenders Holding Company sued the private equity firm
Lone Star Funds to force it to complete its $400 million takeover of
Accredited, Reuters reported today. Accredited’s shares fell as
much as 34.8 percent after Lone Star said late Friday that it would not
go through with its $15.10-a-share buyout, citing a “drastic
deterioration in the financial and operational condition of the
company.” However, San Diego-based Accredited said that the merger

agreement prohibited Lone Star from backing out for that reason. It said

that if shareholders tendered more than half of Accredited shares by
today, all merger conditions would be met. The lender is seeking to
force Lone Star to complete the merger or pay money damages. This month,

Accredited said its survival was in doubt and a bankruptcy filing was
possible.

href='http://www.nytimes.com/2007/08/14/business/14lend.html?pagewanted=print'>Read

more.

href='http://www.nytimes.com/2007/08/14/business/14lend.html?pagewanted=print'>

name='5'>Accounting Firm Ordered to Pay Negligence
Damages

A
w:st='on'>
size='3'>Florida jury ruled
that accounting firm BDO Seidman LLP must pay $170 million in
damages for its gross negligence in failing to spot a fraud that led to
the bankruptcy of a
w:st='on'>

size='3'>Miami
size='3'>financial-services company, the

size='3'>Wall Street Journal reported today.
The jury's decision followed on its ruling in June that BDO was grossly
negligent in audits of E.S. Bankest LLC, a
w:st='on'>
size='3'>Miami
size='3'>financial-services firm that was forced into bankruptcy because

of a fraud perpetrated by top executives. Portuguese bank Banco Espirito

Santo SA sued BDO in state court, contending the firm should have turned

up the problems in its audits of the private company. The award raises a

question mark over the financial future of BDO, which last year argued
in court papers that such a decision could undermine its standing as a
national accounting firm and lead to the layoff of thousands of
employees.

href='http://online.wsj.com/article/SB118704778086496512.html?mod=us_business_whats_news'>Read

more.

Hedge Funds

size='3'>U.S. Takes Look at Hedge Funds Lending
Practices

face='Times New Roman' size='3'>U.S.
size='3'>lawmakers are examining the fact that many hedge funds lend
money like banks, but unlike traditional lenders, often don't pay

size='3'>U.S.
size='3'>taxes on the profits, the

size='3'>Wall Street Journal reported today.
While some tax lawyers contend that these types of transactions are
proper, others argue that many variants are legally dubious and that tax

laws should be changed to clarify what is permissible. It isn't clear
how much the current tax treatment of hedge-fund lending could be
costing the U.S. Treasury, but it is likely in the billions of dollars.
The Senate Finance Committee is examining whether the current tax
treatment is correct and whether the law needs to be changed. Also, the
Internal Revenue Service and Treasury Department seem to be taking
notice. The issue of taxes paid by foreign entities engaged in lending
was raised last year for the first time in the agency's 'Priority
Guidance Plan,' which sets out new topics that the IRS and Treasury
Department believe require attention. It was included again in this
year's plan. 

href='http://online.wsj.com/article/SB118705114168196595.html?mod=hpp_us_whats_news'>Read

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name='7'>Goldman and Investors to Put $3 Billion into Struggling
Hedge Fund

Goldman Sachs announced
yesterday that it, along with a group of investors, would inject $3
billion into the firm’s Global Equity Opportunities Fund, a
flailing quantitative hedge fund that lost about 30 percent of its value

in a week, the New York
Times reported today. 
size='3'>The bank’s flagship Global Alpha fund, which once topped
$10 billion, more than doubled its losses in the same week, and as of
Friday, the fund was down 27 percent for the year. The move by Goldman
and the investors — including C. V. Starr & Company, which is
led by Maurice R. Greenberg, and the investor Eli Broad —
indicates the severity of last week’s shifts in the market as well

as the potential for significant losses for other hedge funds. The pain
for hedge funds and banks has been broad, starting in the mortgage
market, spreading to the wider credit markets and ultimately the stock
market. 

href='http://www.nytimes.com/2007/08/14/business/14goldman.html?ref=business&pagewanted=print'>Read

more.

Bayou

Wins Right to Sue 'Redeemer Defendants'

Bankruptcy Judge
Adlai S. Hardin,
Jr. affirmed the legitimacy of a central
component of Bayou Group LLC's recovery plan—the 119 fraudulent
transfer lawsuits it has filed against those who redeemed their
investments from Bayou before it imploded,

size='3'>Bankruptcy Law360 reported yesterday.

Judge Hardin found that investors who did not redeem their investments
before Bayou's implosion are to be primarily considered Bayou creditors,

not Bayou equity-holders. Therefore, he ruled that they are entitled to
see Bayou attempt to recover the millions of dollars the redeemer
defendants reaped because those funds helped to further Bayou's alleged
securities fraud. Bayou filed a total of 119 adversary suits against
investors who took money out of the fund before its collapse, and 110 of

those are still pending, according to the reorganization plan's
disclosure statement. They seek to recover almost $150 million, about
$136 million of which represents the principal sunk into the fund by the

investors, and about $16 million of which represents “fictitious
profits.” 

href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=32340'>Read

more. (Registration required.)

Judge

Allows Hollinger to Maintain Sun-Times Stake

Bankruptcy Judge
Peter Walsh
size='3'>denied Hollinger Inc.’s creditors on Friday in their
attempts to distribute the bankrupt Canadian company’s 70 percent
stake in Sun-Times
size='3'>Media Group Inc., leaving what Hollinger has called its primary

asset intact, Bankruptcy

Law360 reported yesterday. With the
injunction, Judge Walsh confirmed his commitment to protecting the
devalued shares, already established with a temporary restraining order
he offered when Hollinger filed twin bankruptcy proceedings in
the United States and
w:st='on'>

size='3'>Canada
size='3'>on Aug. 1. Hollinger filed for bankruptcy in
w:st='on'>
size='3'>Canada
size='3'>with plans to restructure under the nation's Companies'
Creditors Arrangement Act, which offers struggling companies the
equivalent of the U.S. Bankruptcy Code's chapter 11. It also filed
chapter 15 papers in a

size='3'>Delaware district court
seeking
face='Times New Roman'
size='3'>U.S.
size='3'>recognition of its bankruptcy status. 

href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=32331'>Read

more. (Registration required.)

International

size='3'>Coventree Fails to Sell Asset-Backed
Commercial Paper

Coventree Inc., a
Canadian financial- services company, said that it failed to sell
asset-backed commercial paper to replace maturing debt because of the
credit crunch caused by
w:st='on'>
size='3'>U.S.
size='3'>subprime mortgage losses, Bloomberg News reported yesterday.
The company extended maturities on C$250 million ($238 million) of
commercial paper after buyers balked at taking on more debt.
Toronto-based Coventree specializes in structured finance and has units
that sell asset-backed commercial paper. Coventree is among the first
companies to delay payments on asset-backed commercial paper in the 12
years since the debt has been sold. The company's inability to find
buyers for its short-term debt shows the extent to which the slump in
subprime mortgages has spread to other assets. 
size='3'>Asset-backed commercial paper, which comprises about $1.15
trillion of the $2.16 trillion in commercial paper outstanding, is
bought by investors such as money market funds. 

href='http://www.bloomberg.com/apps/news?pid=20601082&sid=aUbsWLmm6C74'>Read

more.

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