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May 19, 2009
Profit from Payers with Healthy Credit
As Congress moves to limit the penalties on riskier
borrowers, who have become a prime source of billions of dollars in fee
revenue for the industry, card companies are now going after those
people with sterling credit, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. Banks are expected to look at reviving annual
fees, curtailing cash-back and other rewards programs and charging
interest immediately on a purchase instead of allowing a grace period of
weeks, according to bank officials and trade groups. As they thin their
ranks of risky cardholders to deal with the economic downturn,
major banks including American Express, Citigroup, Bank of America and a
long list of others have already begun to raise interest rates, and some
have set their sights on consumers who pay their bills on time. The
legislation scheduled for a Senate vote today does not cap interest
rates, so banks can continue to lift them, albeit at a slower pace and
with greater disclosure.
href='http://www.nytimes.com/2009/05/19/business/19credit.html?_r=1&hp=&pagewanted=print'>Read
more.
Financial Institutions
Commentary: Government
Should Consider Allowing Some Financial Institutions to
Fail
Rather than continuing on the course of bailing out
struggling financial institutions, the government should adopt a new
approach that would, where necessary, allow the controlled failure of a
major financial institution, according to an op-ed by Lee C. Buchheit
and Prof.
size='3'>David Skeel of the University of
Pennsylvania in today’s
face='Times New Roman' size='3'>New York Times
size='3'>. To limit the disruption such an event might cause in the
broader market, Buchheit and Skeel said that the government could
announce that it would support the institution (for example, by
guaranteeing its trading obligations) for, say, 60 to 90 days. During
this period, the institution’s creditors and counterparties would
not be permitted to cancel their contracts and demand immediate
repayment, or force the institution to pony up additional collateral. In
return, the institution requesting government assistance would be
required to ask its creditors and counterparties to reduce or defer
their claims in order to restore the institution to solvency. The
financial institution would also be required to commence plans for a
possible bankruptcy at the end of the support period, make all material
information about itself available to prospective buyers and cooperate
with counterparties that wish to enter into arrangements among
themselves that would smooth an eventual bankruptcy if one cannot be
avoided.
href='http://www.nytimes.com/2009/05/19/opinion/19skeel.html?pagewanted=print'>Read
the full op-ed.
Lehman Brothers Holdings Inc. said that its
broker-dealer and investment-banking services were likely undervalued
amid a hasty sale of the businesses to Barclays PLC last September,
the
size='3'>Wall Street Journal reported today.
In a court filing, Lehman suggested that the arrangement resulted
in a 'windfall' of 'billions of dollars' for Barclays. Lehman claimed
that Barclays may have secured a lower purchase price because
liabilities it assumed for employee bonuses and other contractual
agreements were 'significantly overstated or inaccurate.' Lehman said
that Barclays paid $250 million in cash for nearly all of Lehman's North
American broker-dealer businesses, when excluding money paid for real
estate and other charges. The total price tag was $1.54 billion.
Lehman's core investment-banking and capital-markets businesses earned
more than $16 billion between 2003 and mid-2008, its last quarter as a
public company.
href='http://online.wsj.com/article/SB124267964848031795.html'>Read
more. (Subscription required.)
Commercial real estate loans could generate losses of
$100 billion by the end of next year at more than 900 small and midsize
U.S. banks if the economy's woes deepen, according to an analysis by
the
size='3'>Wall Street Journal. Such loans could
account for nearly half the losses at the banks, consuming capital that
is an essential cushion against bad loans. Total losses at those banks
could surpass $200 billion over that period. Under that scenario, more
than 600 small and midsize banks could see their capital shrink to
levels that usually are considered worrisome by federal regulators.
Nearly one-third of the banks could see their capital slip to risky
levels because of commercial real estate losses, the
face='Times New Roman'>
size='3'>Journal found.
href='http://online.wsj.com/article/SB124269114847832587.html#'>Read
more. (Subscription required.)
In related news, the House Financial Services
Committee will hold a hearing today titled, “Capital Loss,
Corruption and the Role of Western Financial Institutions.” The
hearing will take place at 10 a.m. ET in room 2128 of the Rayburn House
Office Building.
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hrfc051309.shtml'>Click
here to view the prepared testimony and to view the live
Webcast of the hearing.
FDIC Weighs Fee that
Would Hit Big Banks Harder
The Federal Deposit Insurance Corp. is considering
levying a one-time fee to replenish the agency's deposit-insurance fund
that would hit big banks harder than it would hit small ones, the
size='3'>Wall Street Journal reported today.
The agency fund, which protects trillions of dollars in U.S. deposits,
has been depleted by 58 bank failures since January 2008. There was just
$19 billion in the fund at the end of 2008, a historically low level. In
a reversal from prior practice, FDIC officials want to calculate the
proposed one-time assessment based on a company's asset size instead of
its level of deposits. This would saddle big banks, such as Citigroup
Inc., Bank of America Corp., J P. Morgan Chase & Co. and Goldman
Sachs Group Inc., with a larger proportion of the cost.
href='http://online.wsj.com/article/SB124266632374231177.html#'>Read
more. (Subscription required.)
Autos
as Nearly Inevitable
Facing a government-imposed June 1 deadline to
restructure, GM is scrambling to slash some $27 billion of bond debt,
win sweeping cost concessions from the United Auto Workers union and
eliminate almost 1,600 U.S. dealers, Reuters reported today. GM's
debt-laden balance sheet is the source of its immediate crisis and the
reason restructuring experts, analysts and auto executives do not see a
way forward that avoids what could be a complicated and contentious
bankruptcy. 'The only way it is not inevitable is if the government
accepts whatever percentage of bondholders have tried to exchange,
whether it is 40 percent or 50 percent or 60 percent,' said
face='Times New Roman'>Peter
Kaufman, president and head of restructuring
and distressed mergers and acquisitions at the Gordian Group LLC in New
York. GM has said that it must have 90 percent of the $27 billion of
bonds participate in the exchange or it will be forced to file for
bankruptcy.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/05/19/AR2009051900545_pf.html'>Read
more.
In related news, the U.S. Securities and Exchange
Commission has approved General Motors Corp.'s plans to convert $27
billion of unsecured bonds into shares in a deal that the struggling
automaker claims it needs in order to restructure outside of bankruptcy
court,
size='3'>Bankruptcy Law360 reported yesterday.
The SEC approved the exchange offer on Friday after GM filed a
supplement to the prospectus of its previous April 27 debt-for-equity
swap offer, which the automaker has said it will commence only if 90
percent of bondholders agree to the terms. The swap is part of the
company's effort to shed debt and other costs by the June 1 deadline the
federal government has given it to secure a viable restructuring plan
involving concessions from employees and creditors, with the automaker
currently being kept afloat by some $15 billion in federal loans. GM is
offering to exchange 225 shares of its common stock for each $1,000
equivalent of the principal amount of outstanding notes of certain
series. The company has offered to pay accrued interest on the notes
from the most recent interest payment date to the settlement
date. Read
more. (Subscription required.)
Chrysler Dealers to
Challenge Shutdown
A group of auto dealers who are poised to be shut down
by Chrysler LLC are gearing up to challenge the move in court,
the
size='3'>Wall Street Journal reported today.
Nearly 300 affected dealers plan to file a motion in the U.S. Bankruptcy
Court in Manhattan objecting to the company's dealer cuts and the
company's plan to sell most of its operations to Italy's Fiat SpA. On
May 14, Chrysler notified 789 of its 3,200 dealers that it plans to drop
them from its retail network as part of its restructuring in bankruptcy
court. The affected dealers are supposed to stop selling new Chrysler
vehicles on or about June 9. The effort to close or consolidate its
existing dealerships has the backing of the Obama administration's auto
task force. Re
href='http://online.wsj.com/article/SB124273461563234275.html#'>ad
more. (Subscription required.)
Shareholder Bill of Rights
Would Provide Say on Pay
Sen. Charles Schumer (D-N.Y.) will unveil legislation
today that would give corporate shareholders a greater say over the
salaries of top executives,
face='Times New Roman' size='3'>CongressDaily
size='3'>reported. The bill would go further than a 2007 House bill that
would have required public companies to include in their annual proxy
statements an advisory vote for shareholders to weigh in on executive
pay practices. The measure passed the House by a 269-134 vote but
stalled in the Senate due to opposition from business interests.
Schumer’s proposal would provide additional provisions beyond the
2007 bill, such as requiring all members to be put up for a vote at the
same time instead of having their terms staggered, mandating that the
CEO could not hold the chairman of the board position and that boards
establish a separate committee to monitor their risk management
practices.
Energy
Tumbling Prices Push Two
U.S. Energy Firms into Chapter 11
Tumbling energy prices over the past year and a lack
of credit pushed Pacific Ethanol Inc. and TXCO Resources Inc. into
chapter 11 protection, the latest in a string of energy company filings,
according to a Reuters report yesterday. Energy companies have suffered
as the economic downturn sent prices for natural gas, crude oil and
gasoline down sharply from their peaks in July, squeezing many of the
smaller players.Pacific Ethanol, which reported 2008 revenue of $703.9
million, said it plans to continue marketing and selling ethanol under
existing marketing agreements. Five bankrupt subsidiaries have obtained
bankruptcy financing of up to $20 million, which will allow them to
continue operating while they reorganize, according to Pacific
Ethanol’s filing. TXCO Resources said that it sharply increased
capital expenditures last year just as prices for its oil and gas
plummeted more than 50 percent, putting a severe strain on the company's
cash.The San Antonio-based company said in court documents it had $432
million in assets and $323 million in liabilities.
Energy Partners Files
Pre-negotiated Chapter 11 Plan
Oil and natural gas exploration company Energy
Partners Ltd., which said it hoped to emerge from bankruptcy protection
this summer, has filed a pre-negotiated restructuring plan and
disclosure statement,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. Under the proposed plan, the three series
of outstanding senior unsecured notes, representing about $455 million
in indebtedness, would be converted into 100 percent of the outstanding
common stock in the reorganized company, Energy Partners said. All
outstanding shares of prepetition stock in Energy Partners would be
canceled, and holders of allowed equity interests would receive a pro
rata share of warrants to acquire 12.5 percent of the fully diluted new
common stock that would be issued pursuant to the proposed plan. The
court will decide whether to approve the disclosure statement at a
hearing slated for June 10. Energy Partners intends to seek confirmation
of the plan at a July 22 hearing and emerge from bankruptcy
“shortly thereafter,” the company said.
href='http://bankruptcy.law360.com/articles/102017'>Read
more. (Subscription required.)
Terminate Union Agreement
Star Tribune Holdings Corp. has asked a judge to allow
it to reject a collective bargaining agreement (CBA) with a Teamsters
union, saying that a failure to modify the agreement could cripple the
newspaper company's chances at successfully emerging from
bankruptcy,
size='3'>Bankruptcy Law360 reported yesterday.
The agreement between Star Tribune and the Miscellaneous Drivers and
Helpers Union, Local 638, is set to expire June 30, 2011, the memo said.
Star Tribune and the fleet have reached a tentative agreement on
modifications to the CBA that would yield almost $4 million in annual
savings, but they are deadlocked on the company's proposal to withdraw
from a costly pension plan, the memo said.That plan is Star Tribune's
most expensive multiemployer pension plan, with premium payments of more
than $1 million a year and rates scheduled to “increase
substantially each year,” the motion said.
href='http://bankruptcy.law360.com/articles/102064'>Read more.
(Subscription required.)
Trustee Sues Hedge Funds
Over Losses to Madoff
The hedge fund family that topped the list of losers
in Bernard L. Madoff’s Ponzi scheme, with more than $7 billion
sunk in the immense fraud, has been sued by the trustee overseeing the
search for assets in the case, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. The civil lawsuit, filed by
trustee
face='Times 

New Roman'
size='3'>Irving Picard yesterday in federal
court in Manhattan, seeks the return of $3.2 billion that the three
funds took out of their Madoff accounts from 2002 until the
scheme’s collapse in December. The three funds were all managed
and promoted by the Fairfield Greenwich Group, an investment advisory
business run by Walter M. Noel Jr., Jeffrey H. Tucker and Andres
Piedrahita. None of the individual partners in Fairfield Greenwich were
named in the lawsuit.
href='http://www.nytimes.com/2009/05/19/business/19madoff.html?ref=business&pagewanted=print'>Read
more.
Boston-based CrossHarbor Capital Partners LLC reached
a deal yesterday with Yellowstone Club's lenders and creditors to buy
the private golf and ski resort out of bankruptcy court for about $115
million, the
size='3'>Wall Street Journal reported today.
Under terms of the agreement, CrossHarbor will assume $80 million in
debt owed to Credit Suisse Group AG and will pay $35 million in cash.
CrossHarbor will also provide as much as $75 million in working capital
for the club. Credit Suisse, a lender to the club, also may receive a
portion of available funds collected from the club's former
owners.
href='http://online.wsj.com/article/SB124267438287731485.html'>Read
more. (Subscription required.)
BlackRock Draws Scrutiny
as U.S. Adviser
BlackRock, which manages $1.3 trillion in assets for
big private clients, is now drawing attention for its role as a
government adviser and contractor to help the government manage the
complex rescues of Bear Stearns, the American International Group and
Citigroup, the
size='3'>New York Times reported today. It
also won a bid to carry out a Federal Reserve program to stimulate the
moribund housing market, and it has been hired to help evaluate Fannie
Mae and Freddie Mac, the government-created mortgage finance giants.
“They have access to information when the Federal Reserve will try
to sell securities, and what price they will accept. And they have
intricate financial relations with people across the globe,” said
Sen. Charles E. Grassley (R-Iowa). “The potential for a conflict
of interest is great and it is just very difficult to police.”
Without naming BlackRock, federal auditors have warned that any private
parties that purchase distressed assets on the government’s behalf
could use generous federal subsidies to overpay, artificially pushing up
the price of similar assets that they manage for their own
portfolios.
href='http://www.nytimes.com/2009/05/19/business/19blackrock.html?ref=business&pagewanted=print'>Read
more.
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