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September 18,
2009
Bankers Face Sweeping Curbs
on Pay
Policies that set the pay for tens of thousands of
bank employees nationwide would require approval from the Federal
Reserve as part of a far-reaching proposal to rein in risk-taking at
financial institutions, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The Fed's plan would, for the first time,
inject government regulators deep into compensation decisions
traditionally reserved for the banks' corporate boards and executives.
Under the proposal, the Fed could reject any compensation policies it
believes encourage bank employees -- from chief executives, to traders,
to loan officers -- to take too much risk. Bureaucrats wouldn't set the
pay of individuals, but would review and, if necessary, amend each
bank's salary and bonus policies to make sure they don't create harmful
incentives. A final proposal is still a few weeks from completion and
could be revised along the way as it requires a vote by the central
bank's board, but no congressional approval.
href='http://online.wsj.com/article/SB125324292666522101.html#mod=WSJ_hps_LEFTWhatsNews'>Read
more. (Subscription required.)
FTC Considers Ban on Loan
Modification Scams
The head of the Federal Trade Commission said
yesterday that the agency is considering banning upfront payments to
companies that advertise help for borrowers who are in trouble on their
home loans, the Associated Press reported yesterday. Government
officials say scammers seeking to take advantage of borrowers in danger
of default often charge upfront fees of $1,000 to $3,000 for help with
loan modifications that rarely, if ever, pay off. FTC Chairman Jon
Leibowitz’s comments came as his agency announced it filed civil
charges against two companies, San Diego-based Nations Housing
Modification Center and Infinity Group Services of Orange County, Calif.
The government accused both companies of charging homeowners large fees
for assistance in working with their lenders, but doing 'little or
nothing' to actually help borrowers. Upfront fees
for such assistance are already prohibited in 20 states.
href='http://news.yahoo.com/s/ap/20090917/ap_on_bi_ge/us_loan_modification_scams_5/print'>Read
more.
FHA's Cash Reserves to Drop
Below Requirement
Federal Housing Administration officials have
announced that the agency has been hit so hard by the mortgage
crisis that for the first time, the agency's cash reserves will drop
below the minimum level set by Congress, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported today. The FHA guaranteed about a quarter of all U.S.
home loans made this year, and the reserves are meant as a financial
cushion to ensure that the agency can cover unexpected losses. Until
now, government officials have warned that the agency could be forced to
ask Congress for billions of dollars in emergency aid or charge
borrowers more for taking out FHA-insured loans if the reserves fell
below the required level, equal to 2 percent of all loans guaranteed by
the agency. An independent audit due out this fall will show that the
agency's reserves will drop below the 2 percent level as of Oct. 1, the
start of the new fiscal year. Although the reserves had remained well
above the minimum required level during the housing boom, the audit last
year showed they had shrunk to 3 percent as of Sept. 30, compared with
6.4 percent a year earlier. The fund's value was estimated at $12.9
billion, down from $21.2 billion the previous year.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/09/17/AR2009091704594_pf.html'>Read
more.
SEC Looks to Prohibit Flash
Trade, Curb Raters
The Securities and Exchange Commission proposed
banning flash orders, which give certain large traders sneak peeks at
market activity, responding to concerns that some investors are getting
an unfair advantage, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. SEC Chairman Mary Schapiro said flash orders
may result in a 'two-tiered market' and noted that 'the interests of
long-term investors should be upheld as against those of professional
short-term traders when those interests are in conflict.' The SEC also
passed rules aimed at reducing conflicts of interest at credit-ratings
firms, which have been blamed for contributing to the financial crisis
by giving mortgage-backed securities and other products rosier ratings
than warranted. The agency also voted to eliminate credit ratings from
certain SEC rules, hoping to foster more due diligence by investors and
less reliance on ratings. The SEC required ratings firms to disclose all
upgrades, downgrades and withdrawals on products they rate. Firms, such
as McGraw-Hill Cos.' Standard & Poor's, Moody's Corp.'s Moody's
Investors Service and Fimalac SA's Fitch Ratings, also would be required
to share information used in ratings with other ratings providers in
certain cases. The SEC is also weighing possible rules to deter 'rating
shopping,' in which debt issuers get preliminary ratings and then select
href='http://online.wsj.com/article/SB125322159618320841.html#mod=WSJ_hps_MIDDLEThirdNews'>Read
more. (Subscription required.)
on Ratings-Agency Reform
While credit rating firms are adopting new measures to
improve the reliability of their ratings and acquiescing to a number of
other regulatory measures pushed by the SEC and the Obama
administration, these steps do not go far enough to stem some of the
firms’ practices that led to the current economic downturn,
according to a commentary in today’s
face='Times New Roman' size='3'>Washington Post
size='3'>. The proposals would preserve a business model that leaves the
agencies hopelessly conflicted between the interests of the banks and
corporations that pay handsomely to have their securities rated and
investors who rely on those ratings when buying securities, according to
the commentary. They would preserve a legal shield, according to the
commentary, that has made it all but impossible for investors to sue the
agencies for negligence when they issue ratings that they know, or
should know, are wrong.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/09/17/AR2009091704608_pf.html'>Read
more.
Media
Analysis: Media Rules
Complicate Restructurings
Wall Street lenders are tripping over federal
media-ownership rules as they find themselves the unexpected owners of
several distressed radio, television and newspaper companies, the
size='3'>Wall Street Journal reported today.
The issue has taken center stage at Citadel Broadcasting Corp., as one
of the U.S.'s largest radio broadcasters races to revamp its balance
sheet. Citadel has offered senior lenders owed $2 billion -- including
JP Morgan Chase & Co., General Electric Co.'s GE Capital and ING
Groep NV -- a deal that would exchange a big chunk of debt for equity.
On Wednesday, Citadel faced a deadline to make a $2 million interest
payment, but its status remained unclear. Talks have slowed in recent
days in part because some lenders have been caught off-guard by Federal
Communications Commission rules designed to limit concentrated holdings
of media firms.
href='http://online.wsj.com/article/SB125322915767921233.html'>Read
more. (Subscription required.)
to Exit Bankruptcy
Bankruptcy Judge
face='Times New Roman' size='3'>Robert D. Drain
size='3'>cleared the
face='Times New





Roman'
size='3'>Minneapolis Star Tribune yesterday to
emerge from bankruptcy protection by the end of the month under a
reorganization that puts Minnesota's largest newspaper in the hands of
its main lenders, the Associated Press reported yesterday. Approval came
despite efforts by lower-level creditors to require the newspaper to
reveal the identity of its new publisher beforehand. The company said a
steering committee put together by its new owners has a leading
candidate in mind, but it declined to name that person, who still works
for another company and has not yet signed a contract. The
size='3'>Star Tribune will officially emerge
from chapter 11 by Sept. 28, ahead of its next financial reporting
period.
href='http://news.yahoo.com/s/ap/20090917/ap_on_bi_ge/us_star_tribune_bankruptcy_3/print'>Read
more.
GM Helps Axle Maker Avoid
Chapter 11
Troubled auto-parts maker American Axle &
Manufacturing Holdings Inc. secured a lifeline that should help keep it
out of bankruptcy court after striking deals with its banks and winning
$210 million in support from its main customer, General Motors Co.,
the
size='3'>Wall Street Journal reported today.
In a regulatory filing Thursday, American Axle said that the agreements,
reached Wednesday, include a $110 million payment and a $100 million
loan from GM to American Axle -- which GM used to own -- as well as
stock warrants from American Axle to its former parent. American Axle
said that the $110 million payment stems from costs and contracts
associated with GM's June bankruptcy. American Axle said it also
negotiated more favorable agreements on its term loan and revolving
credit facility with banks led by JPMorgan Chase & Co. and
Bank of America and said it expects to report a consolidated profit
on sales of about $400 million in the third quarter.
href='http://online.wsj.com/article/SB125322972929221255.html'>Read
more. (Subscription required.)
Labor Dept
Wants Exemption for GM Health Care Plan
The Labor Department said yesterday that it was
seeking an exemption for General Motors' new retiree health care plan
that would carry out the automaker's plans to transfer company
securities into the health care trust, the Associated Press reported
yesterday. The United Auto Workers' retiree health care trust fund
received a 17.5 percent ownership stake in the new GM as part of the
company's government-led efforts to emerge from bankruptcy protection
last summer. The health care trust, which begins Dec. 31, will cover
700,000 GM retirees and dependents. The proposed exemption would
implement the GM plan developed through bankruptcy courts to transfer
company securities, including common stock, preferred stock and $2.5
billion to the health care trust.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/09/17/AR2009091702877_pf.html'>Read
more.
Lenders Reach Cash
Collateral Deal with Bankrupt Clothing Retailer
The parent company of the now-defunct Steve &
Barry's discount clothing chain has reached an agreement with its
lenders and unsecured creditors limiting its use of cash collateral,
with the lenders agreeing to drop their bid to convert the company's
bankruptcy to chapter 7 in return,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. BH S&B Holdings LLC, the
company’s unsecured creditors’ committee and its
debtor-in-possession lenders agreed that the lenders would not seek to
convert the case unless S&B defaults on the terms of the new cash
collateral agreement.S&B and its lenders, led by collateral agent
Ableco Finance LLC, had been negotiating over the extent of S&B's
right to use cash collateral since January, with the lenders arguing
that most of the cash collateral should be used to pay off S&B's
senior indebtedness. Ableco also moved to convert S&B's bankruptcy
to chapter 7 in July.
href='http://bankruptcy.law360.com/articles/122881'>Read
more. (Subscription required.)
Judge Approves Boscov's
Reorganization Plan
Bankruptcy Judge
face='Times New Roman' size='3'>Kevin Gross
size='3'>yesterday approved regional department store chain Boscov's
emergence from chapter 11 protection, the Associated Press reported
yesterday. The chapter 11 plan provides for the transfer of
substantially all of the old company's assets to a trust that will make
distributions to claim holders. The plan received overwhelming support
from holders of both priority and unsecured claims. Last year, Judge
Gross approved the sale of the Reading, Pa.-based company to the
families of Albert Boscov and Edwin Lakin, the son and the son-in-law of
the privately held company's founder.
href='http://www.pennlive.com/midstate/index.ssf/2009/09/judge_approves_boscovs_emergen.html'>Read
more.
Bank Holding Co. CIB
Marine Files Prepackaged Chapter 11
CIB Marine Bancshares Inc., the holding company of
CIBM Bank, which has branches in Illinois, Wisconsin, Indiana and
Arizona, filed a prepackaged chapter 11 petition in federal court and is
hoping to emerge within 60 days,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. The voluntary petition listed $100 million
to $500 million in both assets and liabilities. The holding company's
deterioration began in 2003, when the recipients of $100 million in
commercial real estate loans defaulted on their payments, Hickey said.
That prompted government regulators to stop the bank from making
interest payments on $60 million in trust-preferred securities for five
years, said John Hickey Jr., president, CEO
and chairman of the bank and holding company.The company was due to make
$43.5 million in interest payments to its trust-preferred securities
holders in April, but it only had $13 million cash on hand and was
unable to make the payments, the reorganization plan said.
href='http://bankruptcy.law360.com/articles/122783'>Read more.
(Subscription required.)
Analysis: Big Cities Bear
Brunt of Cuts
Experts say many major U.S. cities are facing their
worst fiscal crises in years, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. Larry Eichel, director of the Pew Charitable
Trust's Philadelphia Research Institute, said that when his analysts
took a look at the finances of 13 major urban governments earlier this
year, 'we found budget gaps of at least 5 percent in every city except
Pittsburgh -- and they have other financial problems,' including a
severely underfunded pension plan. City governments have expanded during
the past 15 years. While local-government payrolls, excluding teachers,
have been flat for the past 12 months, according to Bureau of Labor
Statistics figures, the number of employees soared by more than 743,000
to 6.49 million over the past decade, an increase of nearly 13 percent.
Some cities haven't seen steep drops in revenue but must deal with
mounting costs because their populations have been surging, said Robert
Kurtter, a managing director of Moody's Investors Service. 'Every place
is having stress, but it is particularly difficult for the growth
cities, the Dallases and Phoenixes,' he said.
href='http://online.wsj.com/article/SB125323490706121723.html'>Read
more. (Subscription required.)
PBGC Seeks to Preserve
Lien in Crucible Asset Sale
The Pension Benefit Guaranty Corp. asked a bankruptcy
court on Wednesday to ensure that the sale of the assets of bankrupt
Crucible Materials Corp. does not jeopardize the pension insurer’s
recovery of certain contribution shortfalls, Bankruptcy Law360
reported yesterday. The PBGC filed a limited objection to the proposed
asset sale on Wednesday in the U.S. Bankruptcy Court for the District of
Delaware, noting that it already has a lien on stock of one of
Crucible’s subsidiaries, Crucible Development Corp., related to a
particular pension plan, and seeking to keep that stock out of the sale.
The PBGC further requested that the sale order clearly state whether
would-be asset buyers will assume any of Crucible’s six pension
plans. A hearing on Crucible’s proposed sale of substantially all
of its assets has been set for Sept. 25.
href='http://bankruptcy.law360.com/print_article/122794'>Read more.
(Subscription required.)
Pilgrim's Pride Files
Chapter 11 Plan
U.S. chicken producer Pilgrim's Pride Corp. filed its
chapter 11 plan yesterday and said it expected to emerge from bankruptcy
with at least $1.65 billion in available financing, Reuters reported
yesterday. Pilgrim's Pride said in its filing that Brazilian meat
producer JBS SA will buy a majority of the
reorganised company's stock and that it was working with various
financial institutions to secure exit financing.The case is
face='Times New Roman'>In re
Pilgrim's Pride Corp., U.S. Bankruptcy Court,
Northern District of Texas (Fort Worth), No. 08-45664.
href='http://www.reuters.com/article/americasMergersNews/idUSBNG39721520090918'>Read
more.
Actress Jasmine Guy filed for chapter 13 protection
during her divorce from Terrence Mitchell Duckett as the couple had
racked up enormous debts, TMZ.com reported yesterday. Guy was recently
granted a divorce from Duckett, her partner of 11 years, in the Los
Angeles Superior Court, but legal documents indicate the actress
declared herself bankrupt during the proceedings because the couple owed
thousands of dollars. Guy owes $123,503 in back taxes and fees, while
Duckett owes $94,354, plus interest.
href='http://www.sfgate.com/cgi-bin/blogs/dailydish/detail?blogid=7&entry_id=47855'>Read
more.
Report: After Two-Year
Drop, Household Net Worth Rises
The Federal Reserve said yesterday that the net worth
of American households grew between April and July, the first quarterly
gain in nearly two years, boosted largely by rising stock and home
prices, the
size='3'>Washington Post reported today. The
increase suggests that households may have begun to recover from record
losses of wealth since the recession began in December 2007. The biggest
boon to household wealth has been an extended rally on Wall Street. U.S.
stock markets seized early on signs that the economy's slide was
slowing, and they have rebounded as much as 50 percent since March. The
value of stock holdings jumped 21.7 percent during the second quarter,
the Fed report showed.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/09/17/AR2009091704697_pf.html'>Read
more.
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