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April 28, 2009
Supreme Court to Hear Case on Bankruptcy Exemption Issue
The U.S. Supreme Court yesterday granted certiorari in Schwab v. Reilly, No. 08-538, to review two bankruptcy exemption issues: (1) When a debtor exempts property as his own and places a value on it in his bankruptcy paperwork, is he limited to that dollar amount or is the asset fully exempt? (2) Is there an exception to the 30-day deadline for objections to the exemption by the bankruptcy trustee? Federal Rule of Bankruptcy Procedure 4003 allows debtors to exempt certain assets from bankruptcy proceedings and provides a 30-day period for trustees to challenge those exemptions. The Court will consider whether a trustee may challenge the valuation of a properly exempted asset after the 30-day period. The U.S. Court of Appeals for the Third Circuit held that any challenge must come within the 30-day period. Click here to read the U.S. Supreme Court blog for the grant of certiorari, Circuit Court's opinion, petitions and briefs associated with Schwab v. Reilly.
name='2'>House Financial Services Committee to Markup Mortgage Reform Bill Today
The House Financial Services Committee today will mark up H.R. 1728, the 'Mortgage Reform and Anti-Predatory Lending Act,' according to a press release. H.R. 1728 is aimed at curbing predatory lending in the mortgage market. The bill is a tougher version of a measure sponsored in the previous Congress by Reps. Brad Miller (D-N.C.) and Mel Watt (D-N.C.) that would have overhauled mortgage regulations to prevent another subprime mortgage meltdown. The House approved the bill in the 110th Congress with bipartisan support, but it did not advance in the Senate. For more information on H.R. 1728, click here.
The mark-up hearing will take place at 10 a.m. in Room 2128 of the Rayburn House Office Building. Click here to view a live webcast of the hearing.
name='3'>Cramdown, Credit Card Legislation Face Industry Challenges This Week
House and Senate lawmakers are heading toward votes by the end of this week on legislation that would clamp down on two major segments of the financial industry that have long fought additional regulations, The Hill reported today. In the Senate, Democrats are headed toward a vote on Thursday at the earliest on a controversial bill that would empower bankruptcy judges to write down primary home mortgages for chapter 13 debtors. Republicans remain unified in opposition to the cramdown bill and a handful of centrist Democrats have raised questions. Senate aides said discussions were ongoing about whether the measure would come up as an amendment to or as part of a broadly supported bill boosting the borrowing authority of the Federal Deposit Insurance Corporation (FDIC). Senate Majority Whip Dick Durbin (D-Ill.) continues to negotiate with JPMorgan Chase & Co., Wells Fargo, Bank of America and the Credit Union National Association to strike a deal on the bill. Additionally, the House will vote on Thursday on a bill sponsored by Rep. Carolyn Maloney (D-N.Y.) that would attempt to rein in credit card practices that consumer advocates have long opposed. President Obama last week met with executives from the nation's leading credit card companies and signaled a desire to impose new restrictions on the industry. Maloney's effort is similar to a series of changes to credit card policies issued in December by the Federal Reserve, but would put the Fed's changes into law at a faster pace. Currently, the Fed's rules would take effect in July 2010, which consumer advocates say is too far in the future. Read more.
name='4'>FDIC Chief Calls for Broader Powers for Agency
Federal Deposit Insurance Corp. Chair Sheila C. Bair said yesterday that her agency should have broader powers to take over and close a variety of financial institutions to prevent taxpayers from shouldering the losses on firms deemed too big to fail, the New York Times reported today. Instead of just seizing commercial banks, Bair said that the FDIC should be able to take over troubled insurers, bank holding companies and other insolvent financial institutions and force stockholders and bondholders to bear the cost. 'Viable portions of the company would be put into the good bank, while the ailing portions would remain at the bad bank to be sold or closed over time,' Bair said. Bair added that the concept of 'too big to fail' should be scrapped in favor of a resolution program that would clean up the balance sheets of insolvent institutions so they can reorganize as better-capitalized companies. The notion of too big to fail 'has contributed to unprecedented government intervention into private companies,' she said. Read more.
name='5'>Lehman Unit Sues CDS Partner to Recover $46 Million
Lehman Brothers Special Financing Inc. (LBSF) has accused Metropolitan West Asset Management LLC of illegally withholding $46 million from the specialty unit in order to offset an unrelated claim against Lehman's bankrupt parent company, Bankruptcy Law360 reported yesterday. The adversary complaint, filed on Friday in the U.S. Bankruptcy Court for the Southern District of New York, argues that MetWest, along with one of its funds, allegedly owes LBSF $146 million on a swap agreement. Despite those concessions, MetWest has paid the Lehman unit less than $100 million and has sought to use the remaining amount it owes LBSF to set off 'certain payment obligations' that Lehman Brothers Holding Inc. Ñ 'a debtor that happens to be the indirect parent of LBSF but which is a wholly separate and legally distinct entity' Ñ allegedly owes the defendant because of six separate corporate bonds that are not related to the swap agreement, according to the complaint. The adversary complaint seeks to force MetWest to pay the remainder of the $146 million owed because of the defendant's early termination of the agreement and also requests sanctions and punitive damages because of the 'knowing, willful and contemptuous' breach of the stay. Read more. (Subscription required.)
name='6'>SemGroup Wins Extension on $150 Million DIP Loan
Bankruptcy Judge Brendan Linehan Shannon allowed bankrupt petroleum distribution company SemGroup LP to extend the maturity date on a $150 million debtor-in-possession credit line with the understanding that the company will be in a position to emerge from chapter 11 protection by Sept. 18, Bankruptcy Law360 reported yesterday. Under the conditions set forth in the extension agreement, SemGroup will be required to file a disclosure statement and plan of reorganization in bankruptcy court by May 15 and obtain confirmation of a plan by Sept. 18. In granting the extension, Judge Shannon also allowed for the payment of an additional $500,000 extension fee and $250,000 administrative agent fee payable to Bank of America, which is the lead lender on the DIP package, along with other added fees and interest, according to the Thursday's order and the earlier motion. Read more. (Subscription required.)
Autos
name='7'>Bondholders Say GM on Risky Path to Bankruptcy
General Motors Corp. bondholders representing more than $27 billion of GM debt called the automaker's debt-exchange offer politically motivated and legally risky, and said that it had a small chance to succeed in a way that would avoid bankruptcy, Reuters reported yesterday. 'We are deeply concerned with today's decision by GM and the auto task force to offer only a small, inequitable percentage of stock to its bondholders in exchange for their bonds,' according to the bondholders. GM said earlier that it would offer bondholders new shares in an attempt to cut 90 percent of its bond debt as part of a deeper restructuring. The terms of the deal as dictated by the Obama administration's auto task force would give bondholders only a 10 percent stake in a restructured GM while reserving an almost 40 percent for the United Auto Workers. In exchange for its larger equity share, the union would agree to take $10 billion in stock and $10 billion in cash to settle GM's obligation to a retiree health care fund. Read more.
In related news, the government could be exposed to a host of conflicts and potential unintended consequences if it ends up with a controlling stake in General Motors Corp., according to an analysis in today's Wall Street Journal. Under GM's latest restructuring plan, the U.S. would get at least a 50 percent stake in the largest Detroit automaker. Even without a majority stake, the government was able to use its muscle in March to oust GM Chief Executive Rick Wagoner. However, such a major holding would turn GM into a sort of Government Motors, making the federal government the company's de facto boss and bank lender. A direct stake could create other uncomfortable conflicts: The Obama administration would be setting emissions and mileage standards for cars in Washington while having to implement them in Detroit. It also would make the government a direct partner of the United Auto Workers, which would get a 39 percent stake in the company under GM's latest blueprint for survival. Read more. (Subscription required.)
GM's Latest Plan Envisions a Much Smaller Automaker
For all the uncertainty swirling around General Motors, the troubled automaker said Monday that one thing was clear: It must become drastically smaller if it hopes to remain a viable company, regardless of whether it has to file for bankruptcy, the New York Times reported today. GM said it would eliminate another 21,000 factory jobs, close 13 plants, cut its vast network of 6,500 dealers almost in half and shutter its Pontiac division. By the time it is finished, GM expects to have only 38,000 union workers and 34 factories left in the United States, compared with 395,000 workers in more than 150 plants at its peak employment in 1970. One goal of this latest plan was to convince the Obama administration, which has been skeptical of GM's previous restructuring goals, that the company is willing to take harsh measures and cut its bloated infrastructure to match its steadily declining share in the United States. GM said yesterday that it needed to borrow $11.6 billion more, for a total of $27 billion. This plan is a far cry from GM's strategy of just a year ago, when it was waging a spirited battle with Toyota for the title of world's largest automaker. Read more.
name='9'>Federal Reserve Pushes Citi, BofA to Increase Capital
Regulators have told Bank of America Corp. and Citigroup Inc. that the banks may need to raise more capital based on early results of the government's stress tests of lenders, the Wall Street Journal reported today. Executives at both banks are objecting to the preliminary findings, which emerged from the government's scrutiny of 19 large financial institutions. The two banks are planning to respond with detailed rebuttals with Bank of America's appeal expected today. Government officials say their meetings about the stress tests with bank executives over the past few days conveyed preliminary results and that discussions were expected to continue this week about specific findings. They also say that banks directed to raise more capital shouldn't be viewed as insolvent. Read more. (Subscription required.)
name='10'>Criminal Authorities Focus on Three Executives in Investigation of AIG
Criminal authorities are focusing on at least three executives at AIG as investigators are looking at multiple ways these executives may have misled the company's auditors and investors about the value of derivatives the firm sold, the Wall Street Journal reported today. Authorities at the Department of Justice and Securities and Exchange Commission are looking at the actions of Joseph Cassano, who ran the firm's London-based Financial Products group, as well as another top executive of the unit, Andrew Forster, and a Connecticut-based Financial Products employee, Tom Athan, though they haven't been charged with wrongdoing. Cassano left AIG last year. Forster and Athan are still at the company and are among those who received retention bonuses in March. Read more. (Subscription required.)
name='11'>Circulation Drops at Most Big Newspapers
Many of the largest U.S. newspapers saw their circulation slide at an accelerated pace in the six months through March, signaling more trouble for an industry already challenged by steep declines in advertising revenue, the Wall Street Journal reported today. Weekday circulation for 395 U.S. papers dropped an average 7.1 percent from the same six-month period a year earlier, according to data released yesterday by the Audit Bureau of Circulations. Eleven of the 25 largest U.S. dailies posted declines of 10 percent or more in average daily circulation for the period, up from one paper recording such a decline the same period a year earlier. Among the largest U.S. papers, the steepest declines were reported by the New York Post, where weekday circulation fell 20.6 percent from a year earlier, and the Atlanta Journal-Constitution, which reported a nearly 20 percent drop. Read more. (Subscription required.)
name='12'>Court Freezes Assets of Pang, Investment Companies
Federal regulators have won a court order freezing the assets of financier Danny Pang, whom they accuse of defrauding investors of hundreds of millions of dollars, the Washington Post reported Monday. The Securities and Exchange Commission said that the assets of Pang's two investment companies were also frozen. He was ordered to surrender his passports and bring back to the U.S. any assets sent overseas. Pang, a Taiwanese immigrant, founded a $4 billion international investment firm and moved in A-list social circles in Los Angeles. The SEC has accused Pang of bilking investors by falsely portraying returns as coming from investments in timeshare real estate and life insurance policies of seniors when in fact he ran a Ponzi scheme. Pang's companies, Private Equity Management Group Inc. and Private Equity Management Group LLC, are based in Irvine, Calif. In a civil lawsuit, the SEC alleged that Pang and his companies have been engaged in the fraudulent offering of securities since 2003 or earlier, raising hundreds of millions of dollars from investors mostly living in Taiwan. In one case, investors were presented with a forged $108 million insurance policy to support a false claim that an investment was guaranteed, while the actual insurance policy was valued at $31 million, according to the SEC. The SEC says its investigation is continuing. The agency is seeking unspecified civil penalties and restitution of allegedly ill-gotten profits from Pang and the firms. Read more. (Free subscription required.)
International
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