August 62009

 

U.S. Considers Remaking
Mortgage Giants

The Obama administration is considering an overhaul of

Fannie Mae and Freddie Mac that would strip the mortgage finance giants
of hundreds of billions of dollars in troubled loans and create a new
structure to support the home-loan market, the Washington
Post reported today. The bad debts the firms
own would be placed in new government-backed financial institutions that

would take responsibility for collecting as much of the outstanding
balance as possible. What would be left would be two healthy financial
companies with a clean slate. The proposal, which is preliminary and one

of several under discussion, is scheduled to be taken up today by the
White House's National Economic Council. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/08/05/AR2009080504063_pf.html'>Read

more.

Senate Panel Pushes for
Tough Rules on Credit Rating Agencies

Both Senate Banking Chairman Christopher Dodd
(D-Conn.) and ranking member Richard Shelby (R-Ala.) made it clear at a
hearing yesterday that legislation to require more transparency in the
dealings between the rating agencies and their big-time corporate
clients is necessary,
face='Times New Roman' size='3'>CongressDaily
size='3'>reported yesterday. They also agreed that the practice of giant

financial institutions shopping around for favorable bond and security
ratings for ever-more risky and complicated financial instruments had to

be curbed. Sen. Jack Reed (D-R.I.), the principal author of a proposed
new regulatory regime, said that he wants aggrieved investors to have
easier access to the courts to press claims of negligence against
credit-rating agencies. Although a panel of industry officials called
for a slower and measured pace of reform to guard against what one
called 'unintended consequences' of overregulation, Barr said that the
market cannot afford to wait. 

href='http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=89e91cf4-71e2-406d-a416-0e391f4f52b0'>Click

here to read the prepared testimony.

Court Approves Class
Certification in Fraud Suit Against Lehman

U.S. District Judge ShiraScheindlin has granted class
certification to investors who are suing Lehman Brothers Holdings Inc.,
Morgan Stanley and Goldman Sachs Group Inc. for allegedly fraudulently
issuing misleading analyst reports that artificially inflated the stock
price of a communications company,

face='Times










New

Roman' size='3'>Bankruptcy Law360 reported
yesterday. Judge Scheindlin ruled Tuesday that the class will consist of

anyone who bought stock in RSL Communications Inc. between April 30,
1999, and Dec. 29, 2000. In the suit, which was first filed in 2003, the

investors say that the three banks violated the Securities Exchange Act
by issuing false and misleading analyst reports on RSL stock to 'win or
maintain lucrative banking and financial advisory work from the
company,' according to the opinion. This was the second time Judge
Scheindlin had issued a class certification in connection with the case.

Certification had previously been granted in July 2005, but the
investment banks appealed the decision to the U.S. Court of Appeals for
the Second Circuit, which vacated the certification and remanded it back

to the district court, the opinion says. 
href='http://bankruptcy.law360.com/articles/115079'>Read
more. (Subscription required.)

In related news, Bankruptcy Judge
face='Times New Roman'>James
Peck ruled yesterday that Lehman Brothers
Holdings Inc. can provide $950 million in financing to its struggling
bank unit, the latest attempt to prop up the bank and prevent its
failure, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The ruling marks another bid by Lehman to go to

court to protect its stake in the Delaware bank, Aurora Bank FSB, and
keep federal banking regulators from seizing it, a move Lehman said
could cost it more than $3 billion in losses. Judge Peck approved the
financing after hedge fund Elliott Management withdrew an objection to
the proposal. 
href='http://online.wsj.com/article/SB124949085019908309.html'>Read
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U.S. Trustee, Unions Object
to Tribune Bonus Plan

U.S. Trustee Roberta A.
DeAngelis and three employee unions filed
objections to the Tribune Co.'s request for court approval to pay
between $21 million and $70 million in performance bonuses to more than
700 managers and others, the

face='Times










New

Roman' size='3'>Los Angeles Times reported
today. The company, which owns the

size='3'>Los Angeles Times, the

face='Times New







Roman'

size='3'>Chicago Tribune and other media
properties, also sought to pay nine of its top 10 executives $3.1
million in belated 2008 bonuses. Sam Zell, the company's chairman and
chief executive, is not part of the group of 10. In its response to
Tribune's motion, DeAngelissaid that the
company didn't provide enough information to justify its incentive plan.

A court hearing on the matter is scheduled for Aug. 11. 

href='http://www.latimes.com/business/la-fi-tribune6-2009aug06,0,2169765,print.story'>Read

more.

SEC Expands Enforcement
Unit's Powers

The Securities and Exchange Commission will allow its
enforcement division to subpoena documents and compel testimony without
the approval of the agency's five commissioners, a major grant of new
powers that is likely to fuel faster and more frequent investigations,
the
size='3'>Washington Post reported today.
Enforcement division director Robert Khuzami also said he is creating
five specialized investigative groups focused on asset managers, such as

hedge funds and mutual funds; market abuses by big traders; new and
complex financial products, such as derivatives; foreign bribery by U.S.

corporations; and municipal bonds and public pensions. Khuzami also
announced the creation of an Office of Market Intelligence, which will
be responsible for collecting, analyzing and monitoring the hundreds of
thousands of tips the SEC receives each year. He said the system will
allow the division to evaluate tips to discern patterns that could lead
to possible investigations. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/08/05/AR2009080503803_pf.html'>Read

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Autos

U.S. Likely to Sell GM
Stake Before Chrysler

Ron Bloom, the head of President Obama’s auto
industry task force, said yesterday that the federal government is
likely to begin selling its stake in General Motors sooner than its
share of Chrysler, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. Bloom said that members of the task force
thought GM could begin selling stock on the public markets in 2010 but
that an initial offering for Chrysler probably would occur later than
that. “I don’t think Chrysler’s I.P.O. is a 2010
event,” Bloom said. He stressed, though, that unloading the 61
percent share of GM and 8 percent share of Chrysler would take time so
as not to destroy their value. Bloom declined to reveal when he expected

the multiyear string of heavy losses to end, saying only that he was
“very hopeful that it is soon.” 

href='http://www.nytimes.com/2009/08/06/business/06auto.html?ref=business&pagewanted=print'>Read

more.

Senate Reaches Agreement
on a Vote to Extend “Clunkers” Program

Senate Majority Leader Harry Reid (D-Nev.) said that
lawmakers reached a deal yesterday that could allow the Senate to
approve an extension of the “cash for clunkers” program,
the
size='3'>New York Times reported today. The
program has run out of money, but the House voted Friday, before its
summer recess, to approve an additional $2 billion. The Senate must pass

an identical bill, or any extension will have to wait for another House
vote, probably in September. As part of the deal in the Senate, the
Democratic leadership agreed to allow debate on seven amendments to the
bill, six from Republicans. Sen. Tom Harkin (D-Iowa) will offer an
amendment to be considered today that would set income limits on who
could receive the money. Under his proposal, only individuals with
adjusted gross incomes of less than $50,000 or joint filers with
adjusted gross incomes of less than $75,000 could take part. The Senate
is supposed to begin its August recess on Friday. It is also planning to

vote on the confirmation of Sonia Sotomayor to the Supreme
Court. 

href='http://www.nytimes.com/2009/08/06/us/politics/06clunkers.html?_r=1&adxnnl=1&ref=business&adxnnlx=1249564103-RZ2uKPTsZiy1%20t0UQmhE4g&pagewanted=print'>Read

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American Axle to
Restructure Business Outside of Chapter 11

Detroit-based American Axle said yesterday that it
plans to restructure without bankruptcy and posted a narrower loss than
a year ago, Bloomberg News reported today. The company’s
second-quarter net loss of $288.6 million declined from $644.3 million a

year earlier, when a three-month union strike crimped revenue and
production. Sales tumbled 50 percent to $245.6 million for the company,
whose biggest customer is General Motors. American Axle seeks to shrink
operations to match a decline in auto output without having to resort to

court protection, CEO Richard Dauch said. Analysts have suggested the
company may need such a chapter 11 filing because it won't be able to
meet loan terms. 

href='http://www.freep.com/article/20090806/BUSINESS01/908060422/American-Axle-to-restructure--shrink-business-without-Chapter-11'>Read

more.

Finlay Enterprises Files for

Chapter 11

Jewelry retailer Finlay Enterprises Inc.has filed for
chapter 11 protection and plans to pursue an auction of its business and

assets, the Associated Press reported today. The company said yesterday
that it also filed motions with the bankruptcy court to allow it to run
its operations without interruption while the bankruptcy and auction
process run their course. Finlay had 182 locations at the end of the
second quarter, including 67 Bailey Banks & Biddle stores, 34
Carlyle and four Congress specialty jewelry stores. It also had 77
licensed departments with Bon Ton. 
href='http://www.forbes.com/feeds/ap/2009/08/06/ap6747932.html'>Read
more.

Ad Revenue Drop Drives
Publisher Cygnus into Chapter 11

Publisher Cygnus Business Media Inc. has filed for
chapter 11 protection, becoming the latest media-industry victim of
collapsing advertising and sales revenue,

face='Times










New

Roman' size='3'>Bankruptcy Law360 reported
yesterday. Bankruptcy Judge Brendan Linehan Shannon on
Tuesday ordered the case to be jointly administered under a single case
number with the bankruptcies of two affiliated Cygnus entities and
parent company CommerceConnect Media Holdings Inc. The Cygnus entities
filed their petitions in the court on Monday. All unsecured creditors
and employees will be paid in full under the restructuring plan, Cygnus
said. The plan filed with the court relies on a secured debt-equity
exchange of $146 million in debt for common shares in the reorganized
firm. CommerceConnect currently owes about $206 million in total to its
secured lenders, according to court documents. 
href='http://bankruptcy.law360.com/print_article/115036'>Read more.
(Subscription required.)

Quality Home Loans’
Disclosure Statement Receives Court Approval

Bankruptcy Judge Geraldine Mund on Tuesday approved
Quality Home Loans' disclosure statement, setting the stage for a
hearing on the subprime mortgage lender's chapter 11 restructuring
plan,

size='3'>Bankruptcy Law360 reported yesterday.

The Quality Home Loans restructuring plan centers around a settlement
between several of the company's entities and a hedge fund. The
settlement, which was approved in March, includes company entities QHL
Holdings, Fund Ten LLC, Golden State TD Investments LLC and California
TD Investments LLC, as well as the hedge fund Pacificor LLC and other
creditors. Under the agreement, cash held or to be received in the
future from mortgage-related assets would be used to help repay certain
creditors, namely Pacificor, the filing said. Judge Mund also set an
Aug. 14 deadline for filing objections to the restructuring plan, and a
confirmation hearing on the plan is set for Aug. 25. 
href='http://bankruptcy.law360.com/articles/114987'>Read more.
(Subscription required.)

Home Lender Closes
Business after Federally Ordered Suspension

Taylor, Bean & Whitaker Mortgage Corp., a large
home loan company, closed its mortgage-lending business yesterday after
being suspended by federal agencies, Bloomberg News reported today. The
company “will not be able to close or fund any mortgage loans
currently pending in its pipeline,” it said in a statement. The
Federal Housing Administrationsuspended Taylor Bean yesterday, citing
possible fraud. The company did not submit a required annual financial
report and “misrepresented that there were no unresolved issues
with its independent auditor,” the agency said. The auditor
discovered “irregular transactions that raised concerns of
fraud,” the FHA said. The agency’s decision follows a failed

attempt by Taylor Bean to lead an investor group that would have paid
$300 million for control of Colonial BancGroup. 

href='http://www.nytimes.com/2009/08/06/business/06mortgage.html?ref=business&pagewanted=print'>Read

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Judge Calls for Hearing in

SEC Case Against Bank of America

U .S. District Judge Jed S. Rakoff refused to sign off

on a consent decree between the Securities and Exchange Commission and
Bank of America Corp., saying that blessing the deal without a hearing
would leave the public in the dark regarding a key aspect of the Wall
Street bailout, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. Instead, Judge Rakoff set a hearing for Monday
over the charges, in which the SEC alleged that the bank misled
shareholders about billions of dollars in bonuses promised to Merrill
Lynch & Co. employees when the bank bought Merrill at the height of
the financial crisis last year. The SEC and Bank of America had sought
the judge's approval for the settlement, in which Bank of America agreed

to pay $33 million to end the civil lawsuit. 
href='http://online.wsj.com/article/SB124952086387109745.html'>Read
more. (Subscription required.)

Analysis: AIG Breakup Is
Fee Bonanza

Wall Street banks and lawyers could collect nearly $1
billion in fees from the Federal Reserve Bank of New York and American
International Group Inc. to help manage and break apart the insurer,
according to a Wall Street Journal analysis
today. The federal government's bailout of AIG has left it with a nearly

80 percent ownership stake. The government has a multiyear plan to
recoup the more than $100 billion in taxpayer money it put at risk in
the rescue. The plan requires hiring firms to handle public offerings of

some AIG units and outright sales of others, to manage some toxic AIG
assets, and for other tasks. Among the biggest beneficiaries is Morgan
Stanley, which has earned about $10 million assisting the Fed, but could

collect as much as $250 million from various AIG-related deals,
according to some banking experts and documents released by the New York

Fed. Goldman Sachs Group Inc., Bank of America Corp. and JPMorgan Chase
& Co. have all gotten assignments in recent months to help dismantle

AIG. 
href='http://online.wsj.com/article/SB124951576916509361.html'>Read
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AFL Suspends Operations
Indefinitely

The Arena Football League, which previously called off

play for the 2009 season but had said it planned to return in 2010, sent

a statement to its teams late Tuesday announcing it had suspended
operations, the Associated Press reported yesterday. The statement said
that the AFL's board had been 'unable to reach any consensus on
restructuring the league over the past eight months.' The 22-year-old
indoor league had lost its commissioner and two teams since the end of
last season and is likely to file for chapter 7 soon. It reached a new
agreement with its players this year, but that wasn't sufficient to
persuade enough AFL owners that the league could return to
profitability. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/08/05/AR2009080503501_pf.html'>Read

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International

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