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January 9, 2009
Citi
Reaches Deal with Lawmakers on Home Loans
Leading congressional Democrats
said yesterday that Citigroup agreed to support legislation that would
let bankruptcy judges adjust mortgages for at-risk borrowers, the New
York Times reported today. Members of the House and Senate said
Citigroup had agreed to drop its opposition, provided that no future
mortgages are covered by the law. Citigroup, which is receiving more
than $300 billion in bailout assistance, said that it is open to
measures that would help homeowners. Three changes were made to the
legislation sponsored by Sen. Dick Durbin (D-Ill.) and House Judiciary
Committee Chairman John Conyers Jr. (D-Mich.): Only existing mortgages
will be eligible, homeowners will have to certify they tried to contact
their mortgage-holder lenders regarding loan modifications before filing
for bankruptcy, and only major violations of the Truth in Lending Act
will cause lenders to forfeit their claims in a bankruptcy. No other
bank has broken ranks with the industry on the proposed bill.
href='http://www.nytimes.com/2009/01/09/business/economy/09loan.html?ref=business&pagewanted=print'>Read
more (subscription required).
name='2'>Lenders Backlogged by Refinancing Rush
Borrowers are rushing to
refinance their mortgages at record low interest rates, but are facing
unexpected delays as swamped lenders struggle to cope with the surge at
a time when layoffs have sharply cut staffing, the Washington
Post reported today. Bank of America, which started shedding
7,500 employees after its July merger with Countrywide, recently yanked
300 workers from its home equity line department to help deal with
refinancing requests. Given the jam, Wells Fargo no longer allows its
loan officers to lock in rates for less than 90 days so there's enough
time to close the loans. Refinancing activity took off after Nov. 25,
when the Federal Reserve announced it would buy mortgage-backed
securities to help loosen consumer lending. Mortgage rates immediately
plummeted well below 6 percent. Refinance applications have soared each
week since, though they tapered off around New Year's.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/01/08/AR2009010803493_pf.html'>Read
more.
name='3'>Commentary: Bankruptcy 'Exclusivity' Rules Thwart Market
Recovery
One problem in the current bear
market is the prospect that bankruptcy puts a huge damper on investor
appetite for debt securities in overleveraged companies, including
hundreds of billions of dollars in bank and bond debt issued for
leveraged buyouts, according to a commentary by billionaire investor
Carl Ichan in today's Wall Street Journal. Ichan argues that
the situation in the markets could be improved by eliminating the
'exclusivity' period. Without an exclusivity period, Ichan said,
different classes of creditors and equityholders could immediately
propose different restructuring solutions, including the sale of assets
overseen by a bankruptcy court. The biggest impact of such a rule
change, he said, would be that the assets of a company in chapter 11
would be priced as though they could be sold—in effect giving them
a 'mergers & acquisitions premium'—rather than be shackled for
years in a bankruptcy court.
href='http://online.wsj.com/article/SB123146167803966413.html'>Read
more (subscription required).
name='4'>Nationwide Inquiry on Bids for Municipal
Bonds
The federal investigation that
prompted Gov. Bill Richardson of New Mexico to withdraw his nomination
as commerce secretary offers a rare glimpse into a long-simmering
investigation of possible bid-rigging, tax evasion and other wrongdoing
throughout the municipal bond business, the New York
Times reported today. Three federal agencies and a loose
consortium of state attorneys general have for several years been
gathering evidence of what appears to be collusion among the banks and
other companies that have helped state and local governments take
approximately $400 billion worth of municipal notes and bonds to market
each year. E-mail messages, taped phone conversations and other court
documents suggest that companies did not engage in open competition for
this lucrative business, but secretly divided it among themselves,
imposing layers of excess costs on local governments, violating the
federal rules for tax-exempt bonds, and making questionable payments and
campaign contributions to local officials who could steer them business.
More than 30 financial services companies have been subpoenaed,
including JPMorgan Chase, Merrill Lynch and the American International
Group, which have recently received government assistance and in the
case of A.I.G., an outright federal bailout.
href='http://www.nytimes.com/2009/01/09/business/09insure.html?_r=1&ref=business&pagewanted=print'>Read
more.
TARP
name='5'>Panel Steps Up Criticism of Treasury Over
TARP
A report to be released today
says that the U.S. Treasury has failed to reveal its strategy for
stabilizing the financial system, not answered questions asked by a
government watchdog, and has done nothing to help struggling homeowners,
the Wall Street Journal reported today. In the most scathing
criticism yet of Treasury's implementation of the $700 billion
financial-rescue package, a draft report being issued by the five-member
congressional oversight panel headed by Harvard Law School professor
Elizabeth Warren said there appear to be 'significant gaps' in
Treasury's ability to track hundreds of billions of dollars of taxpayer
money. The draft report noted that Treasury hasn't used any of TARP's
$700 billion to help borrowers refinance or deal with mortgages that are
worth more than the market value of the homes they are tied to.
href='http://online.wsj.com/article/SB123147360470067363.html'>Read
more. (Subscription required.)
name='6'>Geithner Preparing Overhaul Of Bailout
Confronted with intense
skepticism on Capitol Hill over the $700 billion financial rescue
program, Treasury Secretary nominee Timothy F. Geithner and
President-elect Barack Obama's economic team are urgently overhauling
the embattled initiative and broadening its scope well beyond Wall
Street, the Washington Post reported today. Geithner has
been with Lawrence H. Summers and other senior economic advisers to hash
out a new approach that would expand the program's aid to
municipalities, small businesses, homeowners and other consumers. Much
of the work by Obama's team has focused on establishing principles that
would clearly define the program's course and the conditions of
government aid to financial firms.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/01/08/AR2009010804109_pf.html'>Read
more.
name='7'>Consumer Credit Falls Rapidly in November
The Federal Reserve reported
yesterday that borrowing through credit cards and other consumer loans
dropped $7.94 billion in November, the biggest decline in 65 years of
record-keeping, the Associated Press reported today. The drop
represented a decline of 3.7 percent at an annual rate from October, the
biggest fall in percentage terms since a 4.3 percent plunge in January
1998. The weakness in November was led by a 3.9 percent annual rate
plunge in the category that includes auto loans. Borrowing in the
category that includes credit cards was down by 3.4 percent.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/01/08/AR2009010803669_pf.html'>Read
more.
name='8'>Interstate Bakeries' Post-Bankruptcy Funding Appears in
Trouble
The $600 million financing
agreement to allow Interstate Bakeries Corp. to emerge from bankruptcy
appears to be in trouble, the Kansas City Star reported
today. The company Wednesday got approval of an emergency order to
employ a special litigation law firm that can advise the wholesale baker
on its rights to enforce the 'the legally binding commitments of the
parties' who agreed to finance Interstate and to take whatever action it
can to see that the deal gets done. In October the court had approved
financing commitment letters in which New York investment firm
Ripplewood Holdings agreed to invest $44.2 million in cash and $85.8
million in convertible debt in IBC for a 50 percent equity stake in the
reorganized company. In addition, General Electric Capital Corp. and GE
Capital Markets, agreed to make a $125 million revolving credit line and
Silver Point Finance, LLC and Monarch Master Funding Ltd., agreed to
make a $344 million term loan.
href='http://www.kansascity.com/382/story/971277.html'>Read
more.
name='9'>Goldman Sachs to Pay Enron $7 Million over
Securities
Goldman Sachs & Co. has
agreed to shell out nearly $7 million to the Enron Creditors Recovery
Corp. over commercial paper transactions leading up to the energy
company's collapse in 2001, Bankruptcy Law360 reported
yesterday. Enron's motion says that between Oct. 26 - Nov. 6, 2001,
Enron paid more than $1 billion on commercial paper prior to those
securities reaching maturity. Enron filed for bankruptcy protection on
Dec. 2, 2001. In November 2003, Enron launched two adversary suits
against about 180 parties over the payments, looking to recover hundreds
of millions of dollars.
href='http://bankruptcy.law360.com/articles/82212'>Read more
(subscription required).
name='10'>Retailers See Tough Months Ahead
Retailers led by Wal-Mart
Stores Inc. warned of lower sales and profits in months to come as grim
declines in December store sales emphasized the toll the plunge in
consumer spending is having on the U.S. economy, the Wall Street
Journal reported today. Disappointing December sales punctured hopes
for a turnaround in spending amid bad jobs and earnings reports from
major companies. The Labor Department released statistics showing the
number of Americans drawing unemployment benefits rose to 4.6 million
for the week ended Dec. 26, the highest since 1982.
href='http://online.wsj.com/article/SB123141458177764035.html'>Read
more. (Subscription required.)
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