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October 31, 2008
Commentary: Mortgage Plan May Aid Many
and Anger Other Homeowners
The Treasury Department confronts a difficult challenge as it prepares a
$40 billion program to help delinquent homeowners avoid foreclosure,
while not angering homeowners who are paying their mortgages on time,
the New York Times reported today. Experts say it is difficult
to design these programs in ways that reduce the indebtedness of the
distressed without giving everyone else a reason to mail the keys back
to their lenders. More than 10 million homeowners are paying more on
their homes than the property is currently worth. Government officials
say that most mortgages will simply be revamped so the monthly payments
become affordable for the next few years. Reductions in loan balances,
which are drawing the most attention, will generally be a last
resort.
href='http://www.nytimes.com/2008/10/31/business/31bailout.html?ref=business&pagewanted=print'>Read
more.
Autos
Governors Press Fed, Treasury to
Help Auto Industry
Six state governors, a Ford executive and others added their voices to
the debate over whether to free up government money to rescue Detroit
and help General Motors merge with Chrysler, the Washington
Post reported today. The governors of Michigan, Kentucky, Ohio,
Delaware, New York and South Dakota banded together this week to
pressure Treasury Secretary Henry M. Paulson Jr. and Federal Reserve
Chairman Ben S. Bernanke to use their regulatory authority to make it
easier for Detroit automakers to access credit and gain additional
funding. Much like the Michigan congressional delegation, which sent its
own letter to Paulson and Bernanke last week, the governors said
Detroit's Big Three are too big to fail. The auto industry employs
millions of Americans and it is one of the largest buyers of steel,
aluminum, iron, copper, plastics, rubber and electronics. In
addition, a large network of suppliers, vendors and dealers rely on
the economic stability of the Detroit-based manufacturers.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/10/30/AR2008103004529_pf.html'>Read
more.
Ford Rehires 1,000
Workers
Ford Motor Co. said yesterday that it would call back 1,000 workers to a
truck plant in Dearborn, Mich., saying it expected growing consumer
demand for its new F-150 pickup truck, the Wall Street Journal
reported today. Ford's move to restore part of its work force at its
Dearborn truck plant -- the workers are set to return in January -- came
as one of its senior executives, Mark Fields, said that the U.S. sales
slump hasn't bottomed out yet. However, Jim Farley, Ford's sales chief,
added that the company believes there is pent-up demand in the
marketplace, especially among truck customers who need a pickup for
their job. The automaker has historically counted on the sales of SUVs
and trucks to boost its bottom line.
href='http://online.wsj.com/article/SB122540951426186165.html#'>Read
more. (Subscription required.)
Report: GM-Chrysler Merger May
Cost 74,000 Jobs
Accounting firm Grant Thornton LLP reported yesterday that a merger of
General Motors Corp., the largest U.S. automaker, and Chrysler LLC may
cost 74,000 jobs and close half of the smaller company's plants,
according to Bloomberg News. The combination may eliminate all but seven
of Chrysler's car and truck models, Grant Thornton LLP said. Chrysler,
the No. 3 U.S. automaker, would keep the Dodge Ram pickup, minivans and
some Jeep models, the report said. The combined company would have to
cut 24,000 Chrysler jobs, split evenly between administrative and
manufacturing employees, which includes the already- announced 25
percent reduction in salaried workers by Chrysler.
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=aWdPr0gYOBlI&refer=home'>Read
more.
Senator Assails Bank-Merger
Assistance
Sen. Charles Schumer (D-N.Y.) complained that a costly tax break granted
by the Treasury Department to encourage bank mergers wasn't approved by
Congress and could cause 'unnecessary' mergers among banks seeking to
take advantage of the new tax benefits, the Wall Street Journal
reported today. Schumer sent a letter yesterday to Treasury Secretary
Henry Paulson and Internal Revenue Service Commissioner Doug Shulman
about a notice issued Sept. 30 that gives banks the unrestricted ability
to use the 'tax losses' of banks they acquire if those losses are from a
loan portfolio. The letter brings a bipartisan tone to congressional
concern about the measure as Sen. Charles Grassley (R-Iowa) previously
had complained about the Treasury's move. Congress generally restricts
the annual amount of losses of a company after it gets acquired to
prevent companies from buying and selling other firms solely to benefit
from the ability to shelter income from taxes. However, the shift by the
IRS and Treasury was designed to help the struggling banking sector by
significantly easing those rules.
href='http://online.wsj.com/article/SB122542570340887381.html'>Read
more. (Subscription required.)
Banks Promise to Use Rescue Funds for
New Loans
As political pressure mounts, at least a few banks are promising to use
capital infusions from the federal government's bailout program to
swiftly make new loans, the Wall Street Journal reported today.
Some banks initially said they didn't expect to quickly use the capital,
leading lawmakers to question the effectiveness of the government's
Troubled Asset Relief Program (TARP). Now, though, some banks are
revving up plans to pour their new capital into loans. 'We do expect to
start deploying it almost immediately,' said Doyle Arnold, chief
financial officer of Zions Bancorp, a Salt Lake City lender that is
slated to receive $1.4 billion through TARP. Two weeks ago, Webster
Financial Corp., a Waterbury, Conn., bank with $17.5 billion of assets,
is waiting for the Treasury to approve its application for capital. When
that happens, Webster will publicly vow 'to lend every single dollar
into the market,' said Chief Executive James C. Smith.
href='http://online.wsj.com/article/SB122540917004586113.html'>Read
more. (Subscription required.)
Analysts Say Pilgrim's Pride
Bankruptcy Probable
Research firm CreditSights said yesterday that bankruptcy for the
nation's largest chicken producer, Pilgrim's Pride Corp., is 'highly
probable,' the Associated Press reported. Shares of Pilgrim's Pride
slipped below $1 yesterday on the news, continuing their erosion just
days after the company announced it had reached another agreement to
temporarily extend its credit facilities, this time through the end of
November. The Pittsburg, Texas-based company -- whose margins have been
hammered by high input costs and weak demand -- also said it will
exercise its 30-day grace period in making a $25.7 million interest
payment due Nov. 3 on its senior notes. When that grace period runs out,
'a bankruptcy scenario now seems highly probable,' according to research
firm CreditSights. 'Although the temporary waiver provides Pilgrim's
Pride with another 30 days of life, it appears to be more illusionary
than substantive,' the report said.
href='http://biz.yahoo.com/ap/081030/pilgrim_s_pride_credit.html?printer=1'>Read
more.
AIG Rescue May ExpandwWith $20.9
Billion Commercial Paper Plan
American International Group Inc., the insurer that has a $122.8 billion
credit line from the government, asked for $20.9 billion under the
Federal Reserve's commercial paper program designed to unlock short-term
debt markets, Bloomberg News reported yesterday. Four affiliates of the
New York-based insurer have applied for the program, which swaps
commercial paper for cash, AIG said yesterday in a regulatory filing.
The proceeds will help refinance AIG's outstanding commercial paper and
pay down AIG's original $85 billion loan from the Fed, the company
said.
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=agTEE76c5xzg&refer=home'>Read
more.
Bankrupt Value City Hit with WARN,
ERISA Suit
A putative class of workers sued bankrupt Value City Holdings
Inc. on Wednesday, alleging that they were denied legally required
notice, as well as benefits entitled to them under pension laws, when
they were terminated two days ahead of the retailer's bankruptcy filing,
Bankruptcy Law360 reported yesterday. In violation of the WARN
Act, Value City never gave roughly 450 workers the required
60 days' notice in connection with the Oct. 24 mass layoff, the
lawsuit alleges, adding that the retailer failed to pay wages, salary,
commissions, bonuses, accrued holiday pay and accrued vacation and
failed to make 401(k) contributions and provide health coverage and
other benefits under ERISA laws. The lawsuit seeks an administrative
priority claim in bankruptcy court for the pay and benefits obligations,
class certification, reasonable compensation for the class
representatives, a claim for attorney's fees and other relief.
href='http://bankruptcy.law360.com/articles/74941'>Read
more. (Subscription required.)
Propex Files Disclosure Statement
and Reorganization Plan
Propex Inc on Wednesday filed its reorganization plan and disclosure
statement that the textile company says provides significant returns to
the hundreds of creditors whose claims helped push it to seek chapter 11
protection in January, Bankrutpcy Law360 reported yeserday. The
plan and disclosure statement outline Propex's plans to reorganize by
issuing new common stock that it hopes will help pay off the company's
more than $200 million in debt, of which about $155 million is secured.
According to the plan, all cash necessary for the reorganized debtors to
make payments pursuant to its creditors shall be obtained from existing
cash balances, the operations of the debtors and the reorganized
debtors, sales of assets or the $50 million exit revolving credit
facility, which the debtors say they are in the process of
soliciting.
href='http://bankruptcy.law360.com/articles/74852'>Read
more. (Subscription required.)
SemGroup Energy Subpoenaed over
Chapter 11 Case
The U.S. Securities and Exchange Commission has stepped up its
investigation of SemGroup Energy Partners LP, subpoenaing documents
related to affiliate SemGroup LP's bankruptcy filing, Bankruptcy
Law360 reported yeserday. The company on Wednesday said that it had
received the SEC subpoena requesting documents related to the liquidity
issues of its parent company, SemGroup LP, which filed for chapter 11 in
July. In July, SemGroup Energy Partners said that it was being
investigated by the SEC and the U.S. Attorney's Office in Oklahoma City.
The U.S. Attorney's Office served SemGroup Energy Partners with grand
jury subpoenas seeking financial records and other information related
to the parent company's collapse.
href='http://bankruptcy.law360.com/articles/74893'>Read
more. (Subscription required.)
Banks Owe Billions to
Executives
Financial giants getting injections of federal cash owed their
executives more than $40 billion for past years' pay and pensions as of
the end of 2007, the Wall Street Journal reported today. While
the government is seeking to rein in executive pay at banks getting
federal money, overlooked in these efforts is the total size of
debts previously incurred to their executives, which at some firms
exceed what they owe in pensions to their entire work forces. The sums
are mostly for special executive pensions and deferred compensation,
including bonuses, for prior years. Some examples are: $11.8 billion at
Goldman Sachs Group Inc., $8.5 billion at JPMorgan Chase & Co., and
$10 billion to $12 billion at Morgan Stanley.
href='http://online.wsj.com/article/SB122542331644887249.html'>Read
more. (Subscription required.)
International
Barclays Seeks $11.8 Billion
Injection
Barclays plans to raise £7.3 billion ($11.8 billion) by selling
shares to Abu Dhabi and Qatar to meet Britain's new capital requirements
for banks without the government's help, the New York Times
reported today. Barclays said today that it would sell £5.8 billion
of convertible notes , which could leave the Middle Eastern investors
with as much as 32 percent of the British bank. An additional £1.5
billion would be raised by selling securities to new and existing
shareholders. Barclays chief executive, John Varley, said earlier that
raising the capital itself would give Barclays more flexibility. The
bank is withholding its second-half dividend but said it plans to resume
payouts in the second half of next year.
href='http://www.nytimes.com/2008/11/01/business/worldbusiness/01barclays.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
U.S. Judge Orders Freeze on
Argentine Pension Investments
A U.S. judge on Wednesday ordered the freezing of Argentine pension fund
investments in the United States to satisfy a prior $554 million
judgment against the South American country on behalf of holders of its
defaulted sovereign debt, Reuters reported yesterday. Judge Thomas
Griesa of U.S. District Court in Manhattan granted a request by
bondholders to freeze the assets and asked Argentine
representatives to respond in court on Nov 6. The judgment applies
to 10 private pension fund management companies in Argentina that hold
more than $1.4 billion in foreign assets, including investments in the
United States.
href='http://www.reuters.com/articlePrint?articleId=USN3030083820081031'>Read
more.