January 18, 2006
Bankruptcy Change Takes Bite Out of Banks' Earnings
A surge in consumer bankruptcies and a flattening yield curve took a bite out of fourth-quarter earnings at some of the nation's largest banks, and some of them stepped up provisions for future loan losses. Several banks —including Wells Fargo & Co. and National City Corp.—missed analysts' profit expectations, Bloomberg News reported today. Yesterday’s earnings reports, the first in a week heavy with results from financial institutions, underscored how the yield curve has continued to hurt the nation's banks and thrifts. Many banks faced sharp increases in loan charge-offs amid the rush of consumer bankruptcy filings before the Oct. 17 change in the nation's bankruptcy law, which will make it more difficult for consumers to discharge their debts. Wells Fargo & Co., the nation's fifth-largest bank by assets, said its profits rose 8 percent in the October-December period despite reduced demand for home mortgages and greater bankruptcy charge-offs. In Minneapolis, U.S. Bancorp, the nation's sixth largest bank, said growth in fee-based businesses helped push fourth-quarter profit up 8 percent to $1.14 billion, or 62 cents per share, matching Wall Street estimates. Read more.
3rd Circuit OKs Dismissal of Mutual Fund Investors' Suit Against Enron
In a suit that directly stemmed from the spectacular demise of Enron Inc., a federal appeals court has upheld the dismissal of securities claims brought by investors in a mutual fund that lost $900 million by waiting to sell its Enron holdings until just two days before the company's bankruptcy, the Legal Intelligencer reported today. In Benak v. Alliance Capital Management, a unanimous three-judge panel of the 3rd U.S. Circuit Court of Appeals concluded that the mutual fund investors themselves had waited too long before going to court. The court said it recognized that an investor in a mutual fund ordinarily has "less reason to monitor the health of companies in which he or she is invested," and is "less likely to have accurate, contemporaneous information regarding where his or her money is invested." But that "knowledge gap" was bridged for investors of Alliance Capital Management, the court said, by media accounts around the time of Enron's bankruptcy that specifically noted Alliance's holdings in Enron. As a result, the 3rd Circuit said, the one-year statute of limitations had already run when the Alliance investors filed suit more than a year after Enron's bankruptcy. Read more (Free subscription required).
Airlines
United Heads into Bankruptcy Hearings
United Airlines expects relatively smooth proceedings this week as it opens
a confirmation on its chapter 11 bankruptcy exit, the culmination of more
than three years of restructuring, the Associated Press reported today. The
plan already has been endorsed by a majority of creditors and appears all
but assured of approval by Judge Eugene Wedoff after a three-day
hearing that is set to begin today in the U.S. Bankruptcy Court in Chicago.
Still, a controversial management stock plan could spark some final
fireworks from unions who have their last chance of objecting to the plan
devised by parent UAL Corp. Under that plan, approved last week by the
committee representing unsecured creditors, United would set aside 8 percent
of the equity it plans to issue—down from 15 percent in its first proposal
- for about 400 salaried and management employees. The flight attendants'
union and others are expected to speak out against the disputed stock plan.
Read more.
Northwest Presses Cost-cutting Plan
A federal bankruptcy judge is urging Northwest Airlines and two of its biggest unions to keep negotiating on a package of concessions, Minnesota Public Radio reported yesterday. Judge Allan Gropper began hearing Northwest's request to reject the existing contracts of the airline's pilots and flight attendants unions yesterday. The unions have urged the court to deny the request, saying Northwest is demanding deeper cuts than it needs to be competitive. The attorney for Northwest told Judge Gropper the airline was hopeful the tentative deal will be approved by the union's membership in three weeks. "I am very pleased you have reached one agreement," said Gropper. Richard Seltzer, an attorney for the pilots union, warned the airline could face a strike. Northwest attorneys countered that they would ask the court to force the workers back, adding that such a strike would be violation of the Railway Labor Act. Read more.
Delphi CEO Aims to Set Labor Pact Outside of Court
Delphi Corp.'s CEO yesterday said the company's goal is to work
out a consensual labor agreement with its unions and not impose one through
the bankruptcy court, according to a Dow Jones Newswire report yesterday.
Robert S. "Steve" Miller didn't rule out unilateral changes to the existing
labor agreement, but said, "we're going to work this out with the union,"
adding that the process will be "very complex and it will take a while to
finish." Speaking to the annual Automotive News World Congress in Dearborn, Mich., Miller said that talks with unions, most notably the
United Auto Workers, which represents more than 20,000 of the auto-parts
maker's U.S. workers, have improved dramatically since former parent General
Motors Corp. entered the picture. Delphi's labor agreements, inherited in
1999 when it was spun off from GM, cost the company $3 billion more annually
than its U.S. competitors, according to Miller. He has said the labor terms,
which have Delphi paying out about $65 an hour in total compensation to
blue-collar workers, have killed the company's competitiveness. Delphi filed
for chapter 11 bankruptcy protection in October. Read more.
Three-Five Files Chapter 11 Plan
Three-Five Systems Inc. has filed a joint plan of reorganization with its wholly owned subsidiary, TFS-DI Inc. in their respective bankruptcy cases, CircuitAssembly.com reported yesterday. The plan proposes a reorganization of both companies into a single post-bankruptcy entity. If approved, the reorganized TFS's operations will be limited to the liquidation and monetization of all its non-cash assets. These assets comprise the cash and non-cash assets of the two companies, which will be substantively consolidated under the plan, TFI said in a filing. The company anticipates that sufficient cash will exist in the consolidated estate on the plan's effective date to pay all claims of all creditors in all classes and that there will be final cash distributions to company shareholders.
Mass. July 4 Committee Dunked into Bankruptcy
The Braintree, Mass., Fourth of July Celebration Committee is bankrupt because of a suit involving a dunk tank accident three years ago, CNC News reported today. For the past 32 years, the committee has sponsored one of the Massachusetts South Shore's largest gala Independence Day celebrations, attracting thousands to the grounds of Braintree High School. A Braintree resident claims that he was injured at the celebration in June 2002 from an errant thrown softball from the dunk tank booth. This booth was being operated by members of the Braintree Professional Management Association to raise funds for the Braintree Food Pantry. This alleged injury has resulted in "lengthy and potentially costly litigation that involves the committee as one of the defendants.” One committee defendant believes it is "doubtful" that the litigation will be resolved before July. The committee hopes to file new corporation papers with Secretary of State William Galvin's office in the coming weeks for the establishment of a replacement committee, which would be called the Braintree Friends of the 4th, Inc. Read more.
Babcock Confirmation Order Entered, Settlement Approved
McDermott International announced that a district court issued an order confirming the Babcock & Wilcox Co. (B&W) chapter 11 reorganization plan and the associated proposed settlement agreement, BankruptcyData.com reported today. There were no appeals from or objections to the court's order recommending confirmation of the plan and approval of the settlement agreement. After the required 30-day appeal period from the court order, McDermott anticipates that the B&W plan and all ancillary agreements will become effective and fully consummated.
Daticon Files Bankruptcy to Ease Sale
A Minnesota-based technology company said yesterday that it has reached agreement to acquire the assets of Daticon Inc., a Norwich, Conn.-based imaging and document-management firm that employs about 170, the New London Day reported today. As part of the deal, Daticon filed for chapter 11 bankruptcy protection, which would allow Xiotech Corp. of Eden Prairie, Minn., to purchase its assets but not its liabilities. Casey Powell, president and CEO of Xiotech, said the deal still needs the approval of the bankruptcy court. He said the transaction would be a perfect fit for his data storage-management firm, which employs about 300 and serves about 1,500 corporate clients. Read more.
Fort Smith Couple Indicted in Bankruptcy Case
A Fort Smith, Ark., couple has been indicted for allegedly trying to conceal their assets in a bankruptcy case, KHBS-TV reported today. The federal prosecutor's office said Tuesday that a grand jury has handed down a 16-count indictment against Barbara L. Griffin and Stephen A. Griffin. Barbara Griffin also was indicted on two counts of concealment of assets, five counts of money laundering, and one count of perjury. Stephen Griffin also was indicted on four counts of making false declarations in bankruptcy filings and three counts of perjury.
International
AOL Latin America Files Joint Chapter 11 Reorganization Plan
America Online Latin America, Inc. yesterday announced that it and its
wholly owned subsidiaries, AOL Puerto Rico Management Services, Inc.,
America Online Caribbean Basin, Inc. and AOL Latin America Management LLC,
have filed a proposed joint reorganization plan and liquidation and related
disclosure statement in their jointly administered chapter 11 bankruptcy
cases in the U.S. Bankruptcy Court for the District of Delaware, Business
Wire reported yesterday. The bankruptcy court is expected to conduct a
hearing on or about Feb. 23 for solicitation of votes to accept or reject
the plan. The proposed plan contemplates payment in full of all unaffiliated
general unsecured creditors and that all equity interests in AOLA will be
extinguished and holders of such equity interests will not receive any
distributions from the debtors.
30,000 Greek Firms Threatened with Bankruptcy
30,000 small and middle-sized firms are threatened with bankruptcy, Greek newspaper Ethnos reported today. According to a research made by ICAP the firms have great financial difficulties. The reason for this is the reduction in demand and the functioning of the big trade centers. For the first time, more companies are closing down than opening. The firms are late in paying their liabilities, and according to sector representatives the worst is yet to come, the paper notes.
Festival Franco-Ontarien Declares Bankruptcy
One of Ottawa's longest-running festivals, Festival franco-ontarien, officially declared bankruptcy Monday, leaving dozens of creditors empty-handed, CBC News reported yesterday. The festival owes $280,000 to more than 70 creditors, including printing companies, hotels and media outlets such as the CBC. Several months ago, the festival filed for bankruptcy protection after discovering $380,000 missing from its bank account. The deadline to extend its bankruptcy protection passed yesterday, but the board of directors decided not to file for an extension because they couldn't figure out a way to pay back creditors. Bills were supposed to be paid by Cobalt Events, consultants hired four years ago by the board of directors to run the festival. After last summer's festival, Cobalt closed its doors and disappeared. Read more.