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February 26,
2009
Set to Vote on Mortgage Cramdown Legislation Today
Despite reluctance from some moderate Democrats, the
House is scheduled to consider legislation today that would allow
bankruptcy judges to modify home mortgages, including reducing the
principal of a loan,
face='Times New





Roman'
size='3'>CongressDaily reported. House
Judiciary Chairman John Conyers (D-Mich.) made changes yesterday to H.R.
1106 to pick up support of Blue Dog and New Democrats who were under
heavy pressure from the banking industry to oppose the measure. The
changes that Conyers made include mandating the use of FHA appraisal
standards to determine a home's fair market value when the price is in
dispute and tightening the eligibility standard for a debtor to enter
bankruptcy to require that the loan is unaffordable and not simply that
the mortgage is more than the house's current value.The manager's
amendment also would increase the percentage of funds that banks could
recover if the borrower later sells the house for a profit. The
reimbursement would be based on a sliding scale.
href='http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h1106ih.txt.pdf'>Click
here to read the text of H.R. 1106.
In related news, the Senate Banking Committee today
will hold a hearing to examine the Homeowner Affordability and Stability
Plan while the Senate Commerce Committee will hold a hearing looking at
consumer protection and the credit crisis and enforcement against
fraudulent credit repair schemes under the Credit Repair Organization
Act (CROA).
href='http://banking.senate.gov/public/index.cfm?Fuseaction=Hearings.Detail&HearingID=97e9b9e4-7577-4685-9eba-4b3f3a1d5d98'>Click
here to view the witness list for the Senate Banking Committee
hearing.
href='http://commerce.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=4b67e543-433f-4155-b757-c3e344eb6799'>Click
here to view the witness list and prepared materials for the Senate
Commerce Committee hearing.
HomeBanc Mortgage Case
Converted to Chapter 7
HomeBanc Mortgage Corp.'s motion to convert its
chapter 11 bankruptcy case to chapter 7 has been granted, despite an
objection from Fifth Third Bank that liquidation would jeopardize
collection funds to which the bank says it is entitled,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported yesterday.
Bankruptcy Judge
face='Times New Roman' size='3'>Kevin Carey
size='3'>issued the conversion order on Tuesday in the U.S. Bankruptcy
Court for the District of Delaware after ruling that HomeBanc had
“sufficient cause” to convert to chapter 7. “The
debtors have liquidated or disposed of most of their assets, terminated
any remaining business operations, and there is no reasonable likelihood
of their rehabilitation,” Judge Carey wrote in the order. U.S.
Trustee
size='3'>George L. Miller has been appointed
to oversee the chapter 7 proceedings.
href='http://bankruptcy.law360.com/articles/88854'>Read
more. (Subscription required.)
Autos
2008
The automaker General Motors said today that its cash
reserves were down to $14 billion at the end of 2008, with losses
totaling $30.9 billion for the year, the
face='Times






New
Roman'
size='3'>New York Times reported today. For
the fourth quarter, it lost $9.6 billion as its global sales fell 26
percent. It spent $6.2 billion of its reserves in the fourth quarter
alone. The company has said in the past that it needed a minimum of $11
billion to $14 billion in reserves to finance operations. In 2007, the
company lost $43.3 billion, a record, mostly the result of a noncash
accounting charge; it adjusted the figure higher by $4.6 billion
today.
href='http://www.nytimes.com/2009/02/27/business/27auto.html?_r=1&hp=&pagewanted=print'>Read
more.
Visteon's Risk for
Bankruptcy Deepens
Visteon Corp.'s bankruptcy risk intensified yesterday
after the auto-parts maker posted a wider fourth-quarter loss and said
that it might violate its debt covenants as the economic downturn slams
automotive companies, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The former Ford Motor Co. subsidiary said that
it is prepared to do whatever is necessary to shore up its capital base,
including eliminating or selling 'substantial assets or operations.'
Visteon, whose products include satellite radios, instrument displays
and climate-control equipment, has already undertaken a massive
restructuring in the past several years, including shrinking its
workforce and giving back some of its underperforming plants to
Ford. Visteon said it intends to cut 1,000 salaried workers --
up from an original target of 800 -- by the end of March and take other
steps such as slashing pay, suspending 401(k) matches and looking for
voluntary separations in its European operations.
href='http://online.wsj.com/article/SB123556390794470641.html'>Read
more. (Subscription required.)
Financial Services
Obama Administration
Turns Its Sights to Banking Regulation
President Barack Obama fired the opening salvo in a
sweeping effort to overhaul supervision of the shaky U.S. financial
system, calling yesterday for legislation that will likely bring greater
government scrutiny of Wall Street, the
face='Times






New
Roman'
size='3'>Wall Street Journal reported today.
At an Oval Office gathering of his economic team and top lawmakers of
both parties, Obama asked Congress to move swiftly to create a new
regulatory structure for 21st-century markets. He said the market
turmoil that has gripped Wall Street since last year 'was not
inevitable,' and urged that steps be taken to protect investors and
consumers while holding executives accountable for risky
behavior.
href='http://online.wsj.com/article/SB123557695904472641.html'>Read
more. (Subscription required.)
Bank of America Weighs
Sale of Ex-Merrill Unit
Bank of America Corp. is looking to sell a private
bank it inherited from Merrill Lynch & Co. as the bank tries to
preserve capital and possibly shed noncore assets, the
face='Times New Roman'>Wall
Street Journal reported today. The private
bank, First Republic Bank, was purchased by Merrill for $1.8 billion in
September 2007 to bolster the securities firm's wealth-management and
banking operations. Merrill ran First Republic as a standalone unit with
its own brand name and management. Founded in 1985, First Republic
stretches from Los Angeles to Boston. At the time of the San Francisco
bank's purchase by Merrill, First Republic had $10 billion of
deposits.
href='http://online.wsj.com/article/SB123560542023076847.html#mod=testMod'>Read
more. (Subscription required.)
Citi Closes in on Deal
with Govt. on Ownership Stake
Citigroup Inc. is closing in on an agreement to boost
the federal government's stake in the company to as much as 40 percent,
the Wall Street Journal reported today. However, a greater U.S.
stake will bring a number of new complications for executives of the New
York-based company. For example, a Mexican law bars any institution that
is more than 10 percent-owned by a foreign government from running a
bank in that country. As a result, some Citigroup executives are worried
that an increased U.S. stake might subject the bank to pressure to
relinquish some or all of its ownership of Grupo Financiero Banamex, the
No. 2 bank in Mexico by assets. Around the world, Citigroup executives
are realizing that the U.S. government's expanded stake could cause
headaches. Citigroup operates in more than 100 countries, and executives
have been scrambling this week to identify potential problems.
href='http://online.wsj.com/article/SB123560759218177045.html#mod=testMod'>Read
more. (Subscription required.)
U.S. Government Increases
Role in Lending to Students
The federal government has quietly increased its
support of the student loan market to such a degree that the real
question may be whether there is a role left for private lenders at all,
the
size='3'>New York Times reported today. The
Education Department agreed in the waning days of the Bush
administration to expand its commitment to buy student loans to keep the
market working, much as the government has agreed to buy up all manner
of loans, from mortgages to commercial paper, to unfreeze various credit
markets. The newest initiative was announced late last fall when there
was great concern about the ability of college students and their
families to get continued financing for education. The most likely size
of the program, detailed in the Federal Register on Jan. 15, was $25
billion. However, in a contract signed just four days later, on the last
day of the Bush administration, the Education Department effectively
agreed to buy up to $60 billion in loans, $35 billion more than the
figure published in the Federal Register. That is almost enough to
purchase all the federal loans made to students last year.
href='http://www.nytimes.com/2009/02/26/business/26student.html?ref=business&pagewanted=print'>Read
more.
U.S. Trustee Objects to
Circuit City's $2.3 Million Bonus Plan
U.S. Trustee
face='Times






New
Roman'
size='3'>W. Clarkson McDow Jr. objected to
Circuit City Stores Inc.'s plan to pay 16 of its top officers up to $2.3
million while it winds down its operations, saying that the payment is
unnecessary and violates bankruptcy law,
size='3'>Bankruptcy Law360 reported today. The
wind-down plan would provide a maximum $2.3 million in bonuses for
Circuit City's CEO, general counsel, chief accounting officer, senior
vice president and chief merchandising officer, and 12 other vice
presidents. The plan effectively gives managers bonuses for tasks they
are already committed to doing, McDow said. Circuit City filed a motion
to approve its wind-down incentive plan on Feb. 6. In addition to the 16
top-tier executives, the incentive plan would provide up to $2.4 million
in bonuses for two lower tiers of employees.
href='http://bankruptcy.law360.com/articles/88823'>Read more.
(Subscription required.)
Aircraft Maker Will Not
Oppose Conversion to Chapter 7
Eclipse Aviation said that it will not oppose a motion
filed in federal court by senior noteholders to convert the Albuquerque
aircraft manufacturer's bankruptcy proceedings to chapter 7, the
Associated Press reported yesterday. Senior secured noteholders filed
the motion in U.S. Bankruptcy Court in Delaware on Tuesday it
became clear, the said, that Eclipse's buyer, European-based
EclipseJet Aviation International Inc., was unable to obtain financing
for the purchase. Bankruptcy Judge Mary Walrath has ordered a
hearing next Wednesday on the motion.
href='http://www.msnbc.msn.com/id/29376095/'>Read
more.
Chapter 7
Doubledown Media LLC, which published Trader
Monthly and other glossy magazines aimed at wealthy and aspiring
Wall Street bankers and traders, has filed for chapter 7 liquidation,
Reuters reported yesterday. The closely-held company, which also
published
size='3'>Cigar Report, Corporate Leader, Dealmaker
size='3'>and
face='Times New Roman' size='3'>Private Air,
has between $10 million and $50 million of both assets and liabilities,
according to its bankruptcy petition. The company ceased operations
after a key financial backer withdrew financing.
href='http://www.reuters.com/article/rbssTechMediaTelecomNews/idUSN2550103020090225'>Read
more.
Nobel Economist's
Financial Firm Files for Chapter 11
Management consultancy and financial-advice firm
Trinsum Group, a blend of management consulting with financial advisory
services founded by former J.P. Morgan chiefs and a Nobel Prize-winner,
filed for bankruptcy yesterday after just two years in business,
size='3'>New York Crain’s Business
size='3'>reported today. According to papers filed in Federal Bankruptcy
Court in Manhattan, the company reported liabilities of about $15.8
million against assets of just $1.2 million—$1.1 million of which
is listed as the value of a patent for an investment management software
program called SmartNest. Trinsum’s chief science officer,
economist Robert Merton, won the Nobel Memorial Prize in economics in
1997 for his famed work in options pricing. He and two colleagues
invented the Black-Merton-Scholes Formula, considered the mathematical
Holy Grail because it provided a way to determine the value of a call
option at any given time.
href='http://www.crainsnewyork.com/article/20090225/FREE/902259980&template=printart'>Read
more.
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