November 12007

 

Fed
Lowers Interest Rate

to 4.5 Percent

The Federal Reserve
reduced its short-term

rates by one-quarter of a percentage point, to 4.5 percent, to help
prevent the disruptions

in mortgages from crippling the rest of the economy, the

face='Times New

Roman' size='3'>New York Times reported today.

However, the vote

was not unanimous and the Fed officials downplayed reports that it would

be cutting rates

further. In a statement accompanying its decision, the central bank
warned that “some

inflation risks remain” and played down risks of a possible
recession. The Fed

acknowledged that the economy would not keep up that pace, in part
because of the depression

in housing. But it predicted that the combination of its rate cut on
Wednesday and its

half-point cut on Sept. 18 “should help forestall some of the
adverse effects on the

broader economy.” The dissenter in the 9-1 vote was Thomas M.
Hoenig, president of the

Kansas City Fed, who wanted to leave the overnight federal funds rate at

4.75 percent.

Additionally, the presidents of 6 of the Fed’s 12 regional banks
did not ask for a

reduction in the discount rate, the rate at which banks borrow from the
Fed. 

href='http://www.nytimes.com/2007/11/01/business/01fed.html?ref=business&pagewanted=prin

t'>Read more.

name='2'>Commentary: Bank’s

Fund to Help Credit Crunch Seen as a Stopgap

Nearly three weeks after
the country’s

biggest banks announced a $75 billion fund to help stabilize the credit
markets, many

experts believe that the plan may just be a stopgap measure
for troubled

investment funds and may not have the ability to resuscitate them,
according to

a New York
Times

size='3'>commentary today. The reason, market participants say, is that
the structured

investment vehicles (SIVs) that helped fuel the Wall Street
loan-packaging boom hinged on

confidence in the quality of the $400 billion in securities they bought
and on easy credit

from investors. The proposed bank fund “is more a towline to get
them to the

scrapyard,” Lou Crandall, chief economist at Wrightson ICAP, a
financial research

firm, said. Citigroup’s seven SIVs are under pressure to repay
investors, and several

less-robust funds could face downgrading. Over all, nearly 30 SIVs
have been forced to

sell assets at an alarming pace — shedding roughly $75 billion
since July and

shrinking the industry by a fifth. Market participants expect SIVs to
unload even more, as

much as $15 billion a week. 

href='http://www.nytimes.com/2007/11/01/business/01siv.html?_r=1&oref=slogin&ref=bus

iness&pagewanted=print'>Read more.

name='3'>Credit Suisse's Net Slips

31 Percent Amid $1.9 Billion in Write-Downs

Credit Suisse Group said
today that its

third-quarter net profit slipped 31 percent and it had written down 2.2
billion Swiss francs

($1.9 billion) for unsold leveraged loans and structured products such
as mortgage

securities, the Wall
Street

Journal reported today.
face='Times New Roman'

size='3'>The result includes a 1.1 billion franc write-down for
leveraged loans, or buyout

credit that Credit Suisse wasn't able to sell on to investors after
demand dried up

dramatically, and a further 1.1 billion francs for residential and
commercial mortgages and

collateralized debt obligations. In its outlook, Credit Suisse said that

it sees encouraging

signs of credit market activity, but that it is still too early to
predict when markets will

return to normal levels. 

href='http://online.wsj.com/article/SB119389808326778910.html?mod=hpp_us_whats_news'>Read

more. (Registration required.)

name='4'>After Court Order,

Objections to AHM
face='Times New

Roman' size='3'>Sale

size='3'>Remain

DB Structured Products Inc. and

Assured Guaranty

Corp. both objected on Tuesday to

size='3'>Bankruptcy Judge
face='Times New Roman'

size='3'>Christopher
Sontchi’s

Oct. 23 ruling to approve the $500 million sale of
American Home

Mortgage’s servicing assets to AH Mortgage Acquisition Co., a
company owned by

investor Wilbur Ross, Bankruptcy
Law360

size='3'>reported yesterday. Assured filed a limited objection to the
proposed form of order

approving the sale of AHM’s servicing platform, claiming the order

did not recognize

the company’s third-party beneficiary rights under a previous
servicing agreement

Assured had made with AHM. DBSP objected to the transfer of its rights
from its servicing

agreement with AHM under the sale order. However, DBSP decided to appeal

Judge

Sontchi’s order to the U.S. District Court for the District of
Delaware, and on

Tuesday requested a limited stay of the sale pending its appeal. 

href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=38917'>Read

more.

(Registration required.)

In related news, Judge Sontchi
denied requests

yesterday from some homebuyers to appoint a consumer privacy ombudsman
in American Home

Mortgage Investment Corp.’s bankruptcy, the Associated Press
reported. Paula Rush of

Churchville, Md., and two other women who obtained mortgages through
American Home asked

that an ombudsman be appointed to ensure that borrowers' personal
information is protected

as American Home sells off its assets, including its mortgage servicing
business. 

href='http://money.cnn.com/news/newsfeeds/articles/apwire/ee23cf5b7a7d3960b68bd37e1263d889.h

tm'>Read more.

name='5'>Solutia Secures $2

Billion Bankruptcy-Exit Loan

Solutia Inc., looking to exit
chapter 11 protection

by the end of the year, lined up a $2 billion bankruptcy-exit loan
yesterday just two weeks

after warning that tough times in credit markets were complicating its
efforts to raise

financing, the Associated Press reported yesterday. Citigroup Inc.,
Goldman Sachs and

Deutsche Bank Securities Inc. have agreed to underwrite the loan, the
chemical company said

Wednesday. The $2 billion exit-financing package includes a $400 million

senior secured

asset-based revolving loan, a $1.2 billion senior secured term loan and
a $400 million

senior unsecured bridge loan. The St. Louis-based company, which also
plans to raise money

through a $250 million rights offering, said that it will use the
financing to make payments

under its reorganization plan. 

href='http://biz.yahoo.com/ap/071031/solutia_bankruptcy.html?.v=1'>Read
more.

face='Times New

Roman' size='3'>
name='6'>U.S.

size='3'> Drops
size='3'>Delphi

size='3'>Probe

The U.S. Department of
Justice has dropped

its investigation into criminal wrongdoing by former executives at
Delphi Corp., the

Detroit Free Press

size='3'>reported today. In an investigation that lasted more than two
years, the Justice

Department looked into whether there was criminal intent behind
accounting irregularities

at
size='3'>Delphi

size='3'>. Those same irregularities have prompted a civil case brought
by the federal

Securities and Exchange Commission. The SEC's civil case, which is still

pending, accuses

former

size='3'>Delphi executives including
former Chairman and

CEO J.T. Battenberg III of using fraudulent accounting to hide the
company's worsening

financial health between 2000 and 2004.

size='3'>The following year, the Troy, Mich.-based supplier filed for
chapter 11. 

href='http://www.freep.com/apps/pbcs.dll/article?AID=/20071101/BUSINESS01/711010362'>Read

more.

w:st='on'>

face='Times New Roman' size='3'>

name='7'>Mesa to Pay Hawaiian Airlines $80
Million

Bankruptcy Judge
Robert Faris ordered Mesa
Air Group on Tuesday

to pay rival Hawaiian Airlines $80 million for allegedly misusing trade
secrets it acquired

through a deal struck during Hawaiian's bankruptcy proceedings,
Bankruptcy Law360 reported

yesterday.

size='3'>Mesa was also
sanctioned because one

of its executives allegedly destroyed important electronic evidence.
Judge Faris found

that

size='3'>Mesa had
misappropriated information

about customer profiles, future financial projections and pricing
policies, and started a

new carrier that duplicated some of Hawaiian's most important routes and

undercut its fares.

Judge Faris did not order

size='3'>Mesa to pay pre-judgment
interest on the damages

and did not order damages to compensate Hawaiian for future losses it
might suffer as a

result of
face='Times New






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amp;#10;Roman' size='3'>Mesa
size='3'>'s actions, saying

that to do so would require unacceptable speculation. 

href='http://bankruptcy.law360.com/secure/ViewArticle.aspx?Id=38989'>Read

more.

(Registration required.)

name='8'>Economy Grew 3.9 Percent

in Third Quarter

The Commerce Department
reported yesterday

that the gross domestic product expanded by a seasonally adjusted 3.9
percent annual rate in

the third quarter, showing that the U.S. economy weathered the summer
credit crunch well as

strong export performance offset the drag from housing, the
Wall Street Journal reported
today. Despite the

growth, rising inventories led some forecasters to predict a cutback in
production in the

current quarter. The crumbling housing sector spurred a 20.1 percent
drop in residential

investment, which shaved a full point off GDP growth. That was more than

offset by a 3

percent increase in consumer spending, which contributed two points to
GDP growth, and by

international trade, which added another point as exports surged. The
report showed few

signs that the housing bust had spilled into the rest of the economy in
the third

quarter. 

href='http://online.wsj.com/article/SB119383320102877592.html?mod=hpp_us_whats_news'>Read

more. (Registration required.)

International

w:st='on'>

face='Times New Roman' size='3'>Dutch

Court

size='3'> Voids YUKOS Bankruptcy in
w:st='on'>

w:st='on'>Netherlands

A Dutch court yesterday
nullified all

decisions taken by the Russian receiver of bankrupt oil firm YUKOS
related to the company's

Dutch assets, Reuters reported yesterday. The court said receiver Eduard

Rebgun, who had

replaced the management of Dutch-based
w:st='on'>

w:st='on'>YUKOS Finance

BV and put all assets,
worth about $2

billion, up for sale, had no right to do so and all his actions should
be reversed. 'Russian

bankruptcy of YUKOS was not in line with Dutch principles of law,' the
court said in its

ruling, adding it could not recognize the bankruptcy or Rebgun's rights
as a

caretaker.
w:st='on'>Russia
size='3'>said in August

it had sold the assets of
w:st='on'>

face='Times New Roman' size='3'>YUKOS Finance
BV

size='3'>, which included a 49 percent stake in Slovak pipeline operator

Transpetrol. YUKOS

Finance also had about $1.5 billion in cash. The Dutch-based company's
assets include the

proceeds of the sale of a 54 percent stake in Lithuanian refinery
Mazeikiu, for almost $1.5

billion, and a 49 percent stake in Slovak oil pipeline operator
Transpetrol, worth between

$100 million and $200 million. 

href='http://uk.reuters.com/article/oilRpt/idUKL3131955920071031'>Read

more.

name='10'>British Banks Lose

Appeal in Credit Card Case

Credit card providers lost an
appeal in the British

House of Lords against a ruling that gives consumers using cards abroad
or ordering goods

from overseas the same protection as they have in the United Kingdom,
Reuters reported

yesterday. The two companies at the center of the challenge, Lloyds TSB
and Tesco Personal

Finance, part of the Royal Bank of Scotland Group, failed in their
argument that the

protection afforded in the Consumer Credit Act could only be applied to
domestic

transactions. Lord Hoffmann said there was nothing in the wording of the

Consumer Credit Act

1974 to exclude foreign transactions. British consumers spent £10
billion on overseas

credit card transactions in 2006, according to figures from the payments

association

Apacs. 

href='http://investing.reuters.co.uk/news/articleinvesting.aspx?type=stocksNews&storyID=

2007-10-31T131850Z_01_GRI147864_RTRUKOC_0_BRITAIN-CREDIT.xml'>Read
more.

href='http://investing.reuters.co.uk/news/articleinvesting.aspx?type=stocksNews&storyID=

2007-10-31T131850Z_01_GRI147864_RTRUKOC_0_BRITAIN-CREDIT.xml'>