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August 26, 2008
FBI Official Warned of Widening
Mortgage Loan Fraud in 2004
A top FBI official in 2004 made a prediction that the booming mortgage
business, fueled by low interest rates and soaring home values, was
starting to attract shady operators and billions in losses were
possible, the Los Angeles Times reported yesterday. 'It has the
potential to be an epidemic,' Chris Swecker, the FBI official in charge
of criminal investigations, said in September 2004. However, it turned
out that Swecker, who retired in 2006, and other FBI criminal
investigators who sought additional assistance to take on the mortgage
swindlers ended up with fewer resources, rather than more. In 2007, the
number of agents pursuing mortgage fraud shrank to around 100. By
comparison, the FBI had about 1,000 agents deployed on banking fraud
during the S&L bust of the 1980s and '90s. The FBI says it now has
about 200 agents working on mortgage fraud, but critics say the agency
might have averted much of the problem had it heeded its own
warning.
href='http://www.latimes.com/news/nationworld/washingtondc/la-fi-mortgagefraud25-2008aug25,0,3222853.story'>Read
more.
Regulators Step Up Bank Actions
Federal regulators have increased the number of struggling
banks they have effectively put on probation, forcing them to fix their
problems and try to avoid potentially costly failures, the Wall
Street Journal reported today. The Federal Reserve and the Office
of the Comptroller of the Currency, two of the nation's primary bank
regulators, have issued more memorandums looking to persuade struggling
banks to take such steps as raising capital, cutting back on risky loans
and suspending dividend payments. The Federal Deposit Insurance
Corp. had 90 banks on its 'problem' institutions list on March 31.
There have been five bank failures since July 11, and many other banks
are considered at risk by regulators. Government officials have been
brokering the memorandums with institutions large and small, from
National City Corp., a Cleveland bank with $154 billion in assets, to
$660 million-asset First Private Bank & Trust of Encino, Calif., a
unit of Boston Private Financial Holdings Inc.
href='http://online.wsj.com/article/SB121970743771671073.html?mod=us_business_whats_news'>Read
more. (Subscription required.)
Delphi's Emergence from Bankruptcy
Uncertain
Nearly three years after Delphi Corp. filed for bankruptcy, its
prospects for emerging soon remain deeply uncertain as the Troy,
Mich.-based auto parts supplier faces growing pressure from investors
and the government, the Detroit News reported today. The
company is seeking court approval to borrow an additional $300 million
from General Motors Corp., but investors are objecting to Delphi's
continued reliance on its former parent when GM is facing deep financial
trouble of its own. A court hearing on the loan that was scheduled for
today has been postponed until next month. There also are significant
questions about Delphi's ability to meet its pension fund obligations.
The Pension Benefit Guaranty Corp., which insures the nation's pension
plans, is urging the supplier to shift some of that burden to
GM.
href='http://www.detnews.com/apps/pbcs.dll/article?AID=/20080826/AUTO01/808260374'>Read
more.
Judge Approves Sale of Clothing
Retailer
Bankruptcy Judge Allan L. Gropper approved the
asset sale of clothing retailer Steve & Barry's LLC to an affiliate
of investment firm Bay Harbour Management for $168 million,
Bankruptcy Law360 reported yesterday. BHY S&B Holdings LLC,
a newly formed affiliate of Bay Harbour and York Capital
Management, said last week that it plans to keep most of the
nation's 276 Steve & Barry's stores open. Judge Gropper's order
mantates that store-closing sales will be held no later than Nov. 30.
The purchase agreement includes merchandise inventories, transfer rights
to Steve & Barry's store leases, the company's intellectual property
and key facilities, including its Port Washington, N.Y.,
headquarters.
href='http://bankruptcy.law360.com/articles/67207'>Read
more. (Subscription required.)
U.S. Energy Files Reorganization
Plan
Bankrupt U.S. Energy Systems Inc. and U.S. Energy Overseas Investments
on Friday filed a joint liquidating plan of reorganization,
Bankruptcy Law360 reported yesterday. U.S. Energy subsidiary
GBGH LLC filed a separate reorganization plan outlining the conditions
for repaying first and second lien loans. GBGH's plan establishes a
“working capital reserve account” of at least $6 million to
pay for the company's operations and maintenance. U.S. Energy filed for
chapter 11 in January after an expansion of its natural gas services in
the United Kingdom stalled.
href='http://bankruptcy.law360.com/articles/67177'>Read
more. (Subscription required.)
Bankrupt Lumber Co. Requests
Conversion to Chapter 15
Cross-border lumber producer Pope & Talbot Inc. filed a petition
Friday seeking to convert from chapter 7 to chapter 15 in order to
facilitate current bankruptcy proceedings between U.S. and Canadian
courts, Bankruptcy Law360 reported yesterday. The bulk of
Pope & Talbot's operations and employees are located in British
Columbia, Canada, and the company has requested that the Canadian case
be recognized as Foreign Main Proceedings. The conversion to chapter 15
will allow PricewaterhouseCoopers Inc. - the court-appointed receiver
and foreign representative in the Canadian proceedings - to serve as the
trustee for the U.S. case.
href='http://bankruptcy.law360.com/articles/67144'>Read
more. (Subscription required.)
JPMorgan's Mortgage Losses Increase in
Quarter
JPMorgan Chase & Co. said that the market value of its investments
in Fannie Mae and Freddie Mac preferred stock had fallen by half to $600
million this quarter, the New York Times reported today.
JPMorgan disclosed that it would write off an additional $1.5 billion as
it continued to dig out of the subprime mortgage mess. Banks have long
been buyers of Fannie Mae and Freddie Mac's debt and equity since they
offered more lucrative returns than other investments like Treasury
bills. Wells Fargo, Sovereign Bancorp and dozens of small banks hold
large preferred stock positions that will most likely need to be marked
down.
href='http://www.nytimes.com/2008/08/26/business/26bank.html?ref=business&pagewanted=print'>Read
more.
Delta Exercises $1 Billion Loan,
Reworks Credit
Delta Air Lines tapped a $1 billion loan ahead of its planned merger
with Northwest Airlines and said that it had renegotiated agreements
with credit card processors to ensure that sales revenue continues to be
turned over promptly, the Wall Street Journal reported today.
Ed Bastian, Delta's president and CFO, said that the funding, which is
part of a credit line that was made available to the airline upon its
exit from bankruptcy last year, will help Delta 'increase our cash
balance as we approach the closing of the merger.' The company, he
added, had $3.7 billion in cash at the end of July, including the $1
billion option exercised Monday, and is comfortable with liquidity
through the end of the year.
href='http://online.wsj.com/article/SB121970699522971015.html?mod=us_business_whats_news'>Read
more. (Subscription required.)
California Construction Contractor
Files for Bankruptcy
C.C. Myers, a California construction contractor whose company is
frequently tapped to do work for the state, has filed for personal
bankruptcy, the Associated Press reported yesterday. Myers filed for
chapter 7 protection nine months after Wachovia Bank said that he
defaulted on a $65 million personal loan for an Auburn, Calif.
development; court records show Wachovia took over much of the
Winchester Country Club property in May, including a championship golf
course, country club and 137 unsold residential lots.
href='http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/08/25/state/n170728D76.DTL&type=printable'>Read
more.
International
Japanese Real Estate Company
Files for Bankruptcy
Asahi Homes Co.'s biggest shareholder, Sebon Corp., yesterday filed for
bankruptcy protection with 62 billion yen ($568 million) in liabilities,
Bloomberg News reported today. Sebon, a Tokyo-based real estate
developer, holds 85.25 percent of Asahi Homes, according to Bloomberg
data. Asahi Homes said that the parent's bankruptcy won't affect the
subsidiary's finances. Sales at Sebon fell after banks tightened
screening of real estate loan applications and construction orders fell
as the government toughened building codes, Asahi Homes said.
href='http://www.bloomberg.com/apps/news?pid=20601101&sid=a0hg9rLL2tKA&refer=japan'>Read
more.