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April 20, 2009
White House to Focus on
Credit Card Abuses
President Barack Obama will soon turn his attention to
high credit card rates, giving a potential boost to congressional
efforts to put limits on the industry, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The president is 'going to be very focused, in
a very near term, on a whole set of issues having to do with credit-card
abuses,' White House economic adviser Larry Summers said yesterday. He
said that the abuses include charging consumers 'extraordinarily high
rates that they wouldn't have paid if they knew what they were getting
themselves into.' Summers is scheduled to meet with the heads of several
of the largest U.S. credit card issuers at the White House on Thursday.
Democratic lawmakers have already begun advancing legislation to curb
certain credit card fees and other practices. It is unclear whether, or
how, the White House's efforts might differ from the measures being
pushed by Rep. Carolyn Maloney (D-N.Y.) and Senate Banking Committee
Chairman Christopher Dodd (D-Conn.).
href='http://online.wsj.com/article/SB124015800037232541.html'>Read
more. (Subscription required.)
Cramdown
Senate to Focus on
Mortgage Cramdown Deal
Senate Democrats will attempt to strike a compromise
this week on legislation that would give bankruptcy judges greater power
to modify home mortgages, including reducing the principal,
face='Times New Roman'>
size='3'>CongressDaily reported today. Senate
Majority Whip Dick Durbin (D-Ill.) has led negotiations with banks,
credit unions and consumer activists in an effort to get a deal this
week. The potential deal would add teeth to a House-passed bill that
would allow a judge to consider whether the lender has offered the
homeowner a new Obama administration plan to help up to 9 million
borrowers avoid foreclosure by allowing them to refinance at lower
interest rates. No deal is anticipated before midweek. The measure
is expected to be combined with provisions that would lift the cap on
the number of business loans that credit unions can make and increase
the FDIC's borrowing authority up to $500 billion for a limited time to
give the agency resources to address the banking sector's
problems.
Commentary: The Problems
with the Mortgage Bailout Plan
Whatever the intended social equity underlying the
idea of allowing bankruptcy judges to modify the mortgage on a chapter
13 debtor’s primary residence, it would obviously precipitate bank
losses and the depletion of bank capital, thus impeding recovery in bank
lending activities and economic recovery, according to a commentary
in
size='3'>Bankruptcy Law360 on Friday. As
recently as the Clinton administration, it was deemed indisputable that
prohibiting the modification of rights of lenders and obligations of
borrowers serves the collective greater good of providing access to
mortgages on principal residences at reasonable rates. A unanimous
Supreme Court in
face='Times New Roman' size='3'>Nobelman v. American Savings
Bank, 508 U.S. 324, held in 1993 that
provisions of chapter 13 of the Bankruptcy Code (specifically 11 U.S.C.
§1322(b)(2)) prohibited bankruptcy judges from modifying mortgages
on principal residences. In that case, one of the more liberal Supreme
Court justices, Justice Stevens, specifically noted that the prohibition
on modifying mortgages on principal residences was “explained by
the legislative history indicating that favorable treatment of
residential mortgagees was intended to encourage the flow of capital
into the home lending market.” [
face='Times New Roman' size='3'>Nobelman, 508
U.S. at 332.] The current cramdown proposal would force lenders to
acknowledge the uncollectibility of a portion of the eligible loans, and
thus recognition of a loss for financial reporting purposes. Given the
other problems (e.g., losses on investment securities)
currently affecting banks, even a modicum of write-offs could certainly
trigger capital impairment of a magnitude that would threaten these
institutions with regulatory sanctions, or even seizure.
href='http://bankruptcy.law360.com/print_article/96539'>Read
more. (Subscription required.)
Analysis: Debt Settlers
Offer Promises but Little Help
With the current economic downturn, hundreds of
thousands of consumers are turning to “debt settlement”
companies to escape a crushing pile of bills, the
face='Times New Roman'>New York
Times reported today. As many as 2,000
settlement companies operate in the United States, triple the number of
a few years ago. Consumers who turn to these companies sometimes get
help from them, personal finance experts say, but that is not the
typical experience. More often, they say, a settlement company collects
a large fee, often 15 percent of the total debt, and accomplishes little
or nothing on the consumer’s behalf. State attorneys general are
being flooded with complaints about settlement companies and other forms
of debt relief. In North Carolina, complaints doubled last year, while
in Florida they tripled. In Oregon, complaints have quadrupled since
2006.
href='http://www.nytimes.com/2009/04/20/business/20settle.html?_r=1&ref=business&pagewanted=print'>Read
more.
BearingPoint Gets Approval
for $350 Million Sale to Deloitte
Bankruptcy Judge
face='Times New Roman' size='3'>Robert Gerber
size='3'>on Friday signed off on the $350 million sale of bankrupt
technology consulting company BearingPoint Inc.'s primary business unit
to Deloitte & Touche LLP,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported. The sale was previously contested as a trustee for
the holders of $450 million in debentures was joined by the unsecured
creditors’ committee in filing objections to the proposed sale on
Wednesday. The Law Debenture Trust Co. of New York said that the sale of
the public services unit outside the bankruptcy plan confirmation
process would “result in little, if any, recovery to the vast
majority of the holders of the debtors' prepetition debt.” The
case is
face='Times New Roman' size='3'>In re BearingPoint Inc., et
al., case number 09-10691, in the U.S.
Bankruptcy Court for the Southern District of New York.
href='http://bankruptcy.law360.com/articles/97451'>Read more.
(Subscription required.)
Joint Venture Wins Auction
of Polaroid’s Assets
A joint venture formed by Hilco Consumer Capital LP
and Gordon Brothers Brands LLC won approval to purchase most of bankrupt
Polaroid Corp.'s assets,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported on Friday. At an auction Thursday before Bankruptcy
Judge
size='3'>Gregory F. Kishel, Patriarch and the
Hilco-Gordon Brothers joint venture went through about 20 rounds of
bidding, according to attorneys who were in the courtroom for the
auction. The debtors accepted Patriarch's $88.1 million bid over Hilco
and Gordon Brothers' $87.6 million bid. However, after creditors
objected, Judge Kishel reportedly ruled that the best offer had actually
come from Hilco and Gordon Brothers.
href='http://bankruptcy.law360.com/articles/97392'>Read
more. (Subscription required.)
U.S. May Convert
Banks’ Bailouts to Equity Share
White House and Treasury Department officials now say
they can stretch what is left of the $700 billion financial bailout fund
further than they had expected a few months ago by converting the
government’s existing loans to the nation’s 19 biggest banks
into common stock, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. Converting those loans to common shares would
turn the federal aid into available capital for a bank — and give
the government a large ownership stake in return. While the option
appears to be a quick and easy way to avoid a confrontation with
congressional leaders wary of putting more money into the banks, some
critics would consider it a back door to nationalization, since the
government could become the largest shareholder in several banks. The
Treasury has already negotiated this kind of conversion with Citigroup
and has said it would consider doing the same with other banks, as
needed.
href='http://www.nytimes.com/2009/04/20/business/20bailout.html?em=&pagewanted=print'>Read
more.
AIG to Get Funds under
Securities-Purchase Pact
American International Group said today that the U.S.
Treasury Department will provide up to $29.84 billion in additional
funds for five years under a securities purchase pact, according to
a
size='3'>Wall Street Journal report. AIG also
said in filings with the U.S. Securities and Exchange Commission that it
has reached another deal for the exchange of different classes of
preferred stock. The insurance giant said that under the purchase pact,
it will sell to the Treasury Department 300,000 shares of series F fixed
rate non-cumulative perpetual preferred stock and a warrant to purchase
up to 3,000 shares of common stock. AIG said that the Treasury will
invest in the company as long as AIG doesn't file for chapter 11
protection.
href='http://online.wsj.com/article/SB124022481818534555.html'>Read
more. (Subscription required.)
Dropping
Lending at the biggest U.S. banks has fallen more
sharply than realized, despite government efforts to pump billions of
dollars into the financial sector, according to a
face='Times New Roman'>Wall
Street Journal analysis of Treasury Department
data. The biggest recipients of taxpayer aid made or refinanced 23
percent less in new loans in February, the latest available data, than
in October, the month the Treasury kicked off the Troubled Asset Relief
Program (TARP). The total dollar amount of new loans declined in three
of the four months the government has reported this data. All but three
of the 19 largest TARP recipients with comparable data originated fewer
loans in February than they did at the time they received federal
infusions.
href='http://online.wsj.com/article/SB124019360346233883.html'>Read
more. (Subscription required.)
Public Pension Inquiry
Spreads
A firm affiliated with Hank Morris, the political
adviser indicted last month on allegations of extracting improper fees
in exchange for investments from New York state's pension fund, helped
investment firms secure business in at least one other state, the
size='3'>Wall Street Journal reported today.
Private-equity firms Quadrangle Group and Carlyle Group, whose names
have already surfaced in connection with the alleged pay-to-play case
involving New York's public pension fund, used the placement firm Searle
& Co., with which Morris was affiliated, to get investments from a
government-run fund in New Mexico, according to a spokesman for the New
Mexico fund. Neither Quadrangle nor Carlyle has been accused of
wrongdoing and both have said they are cooperating with the New York
investigation and aren't targets of it. Searle hasn't been accused of
wrongdoing.
href='http://online.wsj.com/article/SB124018248617132857.html#mod=testMod'>Read
more. (Subscription required.)
Week
Nearly 1,600 workers at General Motors Corp. will lose
their jobs in the next few days as the troubled automaker accelerates
cost cuts in order to qualify for more government aid, the Associated
Press reported today. GM North America President Troy Clarke said in an
e-mail to employees today that the layoffs are needed to ensure the
company's long-term viability. GM is living on $13.4 billion in
government loans. The automaker faces a June 1 deadline to cut costs and
gain concessions from stakeholders in order to get more government help.
Last month GM began cutting 3,400 U.S. salaried jobs as part of the
47,000 job cuts that it will make worldwide by year's end.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/04/20/AR2009042000810_pf.html'>Read
more.
Dayton Superior Files for
Chapter 11
Dayton Superior Corp., which makes products used in
concrete construction, said Sunday it filed for chapter 11 protection
and received $165 million in financing to continue its restructuring,
the Associated Press reported yesterday. The company said it had hoped
to restructure its debt outside of court, but the 'unprecedented tight
credit markets' led it to believe filing for chapter 11 was
the best course of action. Dayton listed assets of $286 million against
liabilities of $413 million in its chapter 11 filing.
size='3'>GE Capital, the financial-services unit of General Electric
Corp., agreed to provide the $165 million in financing. The
debtor-in-possession financing will replace the company's existing $150
million credit facility, Dayton said, and will provide it with
short-term cash to continue reorganizing.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/04/19/AR2009041901938_pf.html'>Read
more.
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