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February 10, 2006
name='1'>Survey Shows Tougher Bankruptcy Law Haunts Card Issuers,
for Now
After spending more than
eight years and $100 million lobbying for tougher bankruptcy laws, early
estimates suggest that credit card companies are seeing their efforts
boomerang with losses of hundreds of millions of dollars in
uncollectible debt,
size='3'>Portfolio Media reported yesterday.
According to a recent Federal Reserve survey, the stampede of consumer
bankruptcy filings induced by the enactment of last October’s
bankruptcy law
has increased fourth-quarter chargeoffs taken by banks on credit card
loans. While the survey, released earlier this week, showed that only
about half of the banks reported chargeoffs directly related to the new
law, the majority of those banks said the surge in bankruptcy filings
accounted for up to 40 percent of the credit card loans they deemed
uncollectable during the fourth quarter. Fifty-six
w:st='on'>
w:st='on'>U.S.
banks were questioned in the survey, which addressed changes in the
supply and demand for bank loans to businesses and households over the
past three months. The survey is one of several studies being conducted
for Congress by the Federal Reserve regarding various effects of the
Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which
was the biggest overhaul of
w:st='on'>
size='3'>U.S.
size='3'>consumer bankruptcy law in recent history.
face='Times New Roman' size='3'>“The results are pretty consistent
with what we expected,” said a major lobbying group for the
banking industry. “We’re still not seeing regular filings
yet, so we’re going to have to wait until things get back to
normal. While banks did see a rise in chargeoffs, most of them
attributed less than 20 percent of them to the law. That’s a small
amount considering how many extra people filed for bankruptcy before the
law went into effect,' said Laura Fisher, a spokeswoman for the American
Bankers Association (ABA).
name='2'>Bankruptcy Judge Allows
face='Times New Roman' size='3'>Delphi
size='3'>to Pay for Special Union Advisors
A
w:st='on'>
York
judge said Delphi Corp. can pay fees of two investment banks and a
special consultant hired by its unions to advise them on contract
negotiations, according to the Associated Press yesterday. The fees will
be credited to the auto-parts maker, which filed for bankruptcy
protection in October, when it reaches a settlement agreement.
size='3'>Delphi
agree to wage and benefit cuts, and it is negotiating with GM and the
union over the future of hourly workers. The UAW, which represents 70
percent of Delphi's U.S. hourly work force, will be given money to hire
investment bank Lazard Freres & Co. at the rate of $175,000 a month
and Milliman Inc. at $100,000 a month. Lazard and Chanin will advise the
unions in their negotiations with
face='Times New Roman' size='3'>Delphi
size='3'>over collective-bargaining agreements. Milliman will advise on
employee-benefit programs as well as collective bargaining agreements.
The deadline by which
has to ask the court to abrogate collective bargaining
agreements with its union workers is Feb. 17. This deadline could be
extended by the judge or by
face='Times New Roman' size='3'>Delphi
size='3'>.
href='http://www.newsday.com/news/local/wire/newyork/ny-bc-ny--delphi-bankrup…'>Read
more.
Judge
OKs Winn-Dixie CEO's Retention Bonus
A federal bankruptcy judge
approved a $1.15 million retention bonus to keep Winn-Dixie's president
and CEO at the helm of the struggling supermarket giant at least until
the end of August, the Associated Press reported Thursday. U.S.
Bankruptcy Judge Jerry Funk approved a deal between Winn-Dixie Stores
Inc. and Peter Lynch to give him the bonus immediately because he agreed
to stay through at least Aug. 31. The bonus is on top of Lynch's
$900,000 salary and other bonuses and stock options. Lynch, who received
a $1.5 million bonus for staying through the end of 2005, would have to
repay the bonus if he is fired before Aug. 31 or leaves without a good
reason. Jerrett McConnell, an attorney representing Winn-Dixie's
retirees, said there was no guarantee that Winn-Dixie would emerge from
bankruptcy by Aug. 31, and recommended that the bonus period be extended
to the end of December.
href='http://news.yahoo.com/s/ap/20060209/ap_on_bi_ge/winn_dixie_bankruptcy_1'>Read
more.
Judge
OKs $11.75M Kmart Settlement
A judge has given his
preliminary approval to a $11.75 million settlement between the
once-bankrupt Kmart
Corporation and its former employees, who alleged the retailer forced
them to invest their pension plans in the company’s now-worthless
stock, Portfolio
Media reported yesterday. The settlement was
originally proposed in November, but Judge Avern Cohn delayed approval,
asking a
face='Times New Roman' size='3'>University
size='3'>of
size='3'>Michigan
size='3'>professor to determine whether the proposed sum was fair
compensation. The $11.75 million will be divided amongst the 71,000
pension fund holders. The average award will be about $162. The highest
individual award is $37,000, with about 5 percent of
employees involved
in the fund collecting large payouts because they held more stock.
Nearly 150,000 Kmart employees and retirees who invested in
Kmart’s pension fund between March 1999 and March 2003
participated in the class action suit, claiming that executives’
breach of fiduciary duty caused them to lose between $28 million and
$300 million. The suit was filed against Kmart executives in order to
bypass delays caused by bankruptcy proceedings. Participants in the suit
claim that Kmart places unfair restrictions on pension investment. The
company will match participant investment, but requires that any funds
provided by Kmart stay invested in the company until the participant
reaches age 55. Employees claim that executives continued to invest
pension money in Kmart stock, even after the company filed for chapter
11. Kmart filed for chapter 11 in January 2002, closing nearly 600
stores and cutting 57,000 jobs before reemerging the following year.
After coming out of bankruptcy protection, the store merged with fellow
retailer Sears Holdings Corp. The case is Rankin v. Rots et
al., case number 2:02-cv-71045-AC, in the U.S. District Court for
the Eastern District of Michigan.
name='5'>International Galleries Declares Bankruptcy
International Galleries
Inc. declared bankruptcy Jan. 31 in the U.S. Bankruptcy Court for the
Northern District of Texas, asking for court protection against over
1,500 creditors included on a first list to whom it owes some $15
million, but it also admitted that it has “potentially”
30,000 creditors, La
Raza reported today. The corporation,
with headquarters at
w:st='on'>3744 Arapaho
Road
size='3'>Addison
w:st='on'>
size='3'>Texas
over 1,000 creditors, assets of $50,000 and debts between $10
million and $50 million. In a motion filed on Feb. 7, IGI listed $11.9
million in assets ($9 million of which is claimed to be art) and
debts of approximately $15,272,400.
href='http://www.laraza.com/news.php?nid=30131'>Read
more.
name='6'>Budget Point of Order Sends Asbestos Measure into
Limbo
Sponsors of asbestos
legislation in the Senate hit a procedural snag Thursday and must
marshal 60 votes to overcome charges that the bill will increase federal
spending, CongressDaily reported today. Sen. John Ensign
(R-Nev.) raised a budget point of order against the asbestos
legislation, saying the measure violates the Budget Act's requirement
that legislation not increase federal spending by more than $5 billion
in years after the 10-year budget window. A spokesman for Majority
Leader Frist said the vote on whether to waive the point of order would
take place next week, putting the asbestos bill in limbo for
now. Ensign's action followed a day of wrangling over the
legislation, which would halt all asbestos lawsuits and establish a $140
billion trust fund to compensate asbestos victims. Ensign said he
feared the trust fund -- which would be made up of contributions by
insurers and companies facing asbestos lawsuits -- would run dry and the
federal government would have to step in to pay asbestos
victims. Judiciary Chairman Specter, the bill's chief sponsor with
Judiciary ranking member Patrick Leahy (D-Vt.), has insisted that the
bill includes 'ironclad' protections to prevent federal funds from being
used, noting that although the fund's money would be funneled through
the Labor Department, it comes from private, not taxpayer,
sources. Earlier Thursday, the Senate voted 70-27 to put aside an
amendment by Sen. John Cornyn (R-Texas) to scrap the underlying bill and
instead establish a narrower scheme designed to limit the number of
asbestos lawsuits.
name='7'>Bankruptcy Case of
w:st='on'>
size='3'>New Jersey
size='3'>Financier Ready to Close
More than a decade after
Robert Brennan, founder of First Jersey Securities, filed for bankruptcy
protection, the case is ready to be closed as a bankruptcy judge in
Trenton has set March 17 as the closing date, the
face='Times New Roman' size='3'>New Jersey Star-Ledger
size='3'>reported yesterday. Although Donald
Conway, trustee of Brennan's bankruptcy cas,ehas distributed $60 million to creditors,
Brennan, in a recent interview from prison, said he offered in 1998 to
settle the bankruptcy case for $78 million. Brennan filed for bankruptcy
in August 1995, several months after a federal judge imposed a $75
million civil judgment on him and First Jersey. The ruling, in
which the judge called the penny-stock brokerage 'a massive and
continuing fraud,' stemmed from a 1985 lawsuit filed by the Securities
and Exchange Commission (SEC). In 2001, six years after filing for
bankruptcy, a jury convicted Brennan of bankruptcy fraud for failing to
report $4 million in bearer bonds. The
face='Times New Roman'
size='3'>Newark
also once included a chain of restaurants and horse breeding/racing
operations, is serving a 12-year sentence in
w:st='on'>
size='3'>Fort
face='Times New Roman' size='3'>Dix
federal prison. Brennan's largest creditor, the SEC, is
preparing to distribute $26.8 million to investors defrauded by First
Jersey.
href='http://www.nj.com/business/ledger/index.ssf?/base/business-2/1139472718…'>Read
more.
Airlines
name='8'>Pay Cuts Sustained for Northwest Flight
Attendants
Despite heated opposition
from its flight attendants union, an interim pay cut agreement between
embattled Northwest Airlines Corp. and the union has been extended while
longer-term concessionary contracts are negotiated,
face='Times New Roman' size='3'>Portfolio Media
size='3'>reported yesterday.
size='3'>Northwest argued that if the pay cut agreement was slashed, it
would cost the company an additional $9 million a week to return workers
to their previous pay levels. Doing so would also void interim
agreements with the Air Line Pilots Association union and International
Association of Machinists union, the airline said. The pay cut
agreement, designed to stave off a breakdown in negotiations until
Northwest reached a final accommodation with its unions, was originally
set to expire Feb. 13. Northwest did not provide a date for termination
of the relief in its request to extend the interim pact. Judge Allan
Gropper’s latest decision also did not set a date, though he is
expected to rule on the airline’s motion to terminate its
contracts with ALPA and PFAA fairly soon. The flight attendants offered
last week to give up 1,553 jobs and accept a 22.5 percent pay cut, but
the company has kept mum on its previous request to scrap employee
collective bargaining agreements. The case is Northwest Airlines
Corporation and Northwest Airlines Corporation et al., case no.
05-17930, in the U.S. Bankruptcy Court for the Southern District of
New York.
name='9'>Delta Offers Payment Plan for Pilots if Pensions Are
Cut
Delta Air Lines' newest
contract offer to its pilots includes a $300 million payment if it
terminates their pension plan, a move that has intensified fears among
pilots that Delta could become the latest airline to foist underfunded
pension obligations onto the federal government, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The Atlanta-based carrier said it has made no
decision on whether to terminate its pilot pension plan, which contains
$1.89 billion in assets but is 47 percent underfunded, according to
recent securities filings. The current contract proposal Delta has
before the Air Line Pilots Association includes a provision that would
kick in if Delta turned over the obligations to the federal Pension
Benefit Guaranty Corp. The offer would give the union a $300 million
interest-bearing note in the event that the airline terminates the plan.
The fate of the pension plan is likely to dominate contract talks that
resumed Tuesday and face a mutually agreed deadline next month on
concessions Delta says it needs as part of its bankruptcy court
restructuring. The airline also lowered the total amount of concessions
it is seeking to $315 million a year from the previous offer of $325
million. Under the latest proposal, pilot pay would be cut by 18
percent, or slightly less than the 19 percent cut Delta had demanded
earlier.
href='http://online.wsj.com/article/SB113954823939070558-email.html'>Read
more.
Congress Looks into
Restrictions on Quarterly Earnings Guidance
House Financial Services Chairman Mike Oxley (R-Ohio) said that his
panel would examine proposals to end the Wall Street tradition of public
companies providing quarterly earnings guidance, expressing concern that
the focus on short-term profits contributed to recent corporate
financial scandals,
size='3'>CongressDaily reported today. Oxley said
corporate management feels pressured by the investment community to
place the focus on short-term earnings rather than the long-term health
of the company. 'I think we need to take a step back and determine what
is really effective in the marketplace, giving that kind of information
without setting perhaps some unrealistic standards,' Oxley said at a
meeting sponsored by the Tax Council Policy Institute.
name='11'>Commentary: Corporate Accountability Cleanup
Continues
After the settlement
yesterday between regulators and the insurance giant American
International Group, a lot of attention focused on the dollars ($1.6
billion), but the money should not obscure the higher goal of an honest
corporate environment, a
size='3'>New York Times
size='3'>editorial reported today. According to the Securities and
Exchange Commission and the
w:st='on'>
size='3'>New York
General's Office, A.I.G. engaged in bid-rigging, fraud and improper
accounting. Like many companies in this era of corporate scandals, the
fraud was meant to make the company look better than it really was.
Rather than focusing on the long-term health of their businesses, too
many executives worry about share prices and analysts' reactions.
Meanwhile, Enron executives showed a similar obsession with financial
analysts as the former head of investor relations described for a
Houston court how Enron, an energy company, would fudge quarterly
results if earnings came in even a single penny short of outside
expectations.
href='http://www.nytimes.com/2006/02/10/opinion/10fri3.html?pagewanted=print'>Read
more.
name='12'>Nortel to Pay $2.47 Billion to Settle
Lawsuits
Nortel Networks Corp., said it
has agreed in principle to pay $2.47 billion in cash and stock to settle
two class-action lawsuits stemming from a financial scandal that first
rocked the telecommunications equipment supplier in 2003, Reuters
reported yesterday. Under the proposed deal, Nortel expects to pay $575
million in cash from its reserves and issue 628.7 million of its common
shares, or 14.5 percent of its current equity. It sees a total charge of
$2.47 billion, or 57 cents a share. Still the target of regulatory and
criminal investigations over its accounting scandal, Nortel said it
expects to record a charge to its full-year 2005 results, which will
apply to its fourth quarter numbers. The company also said it will
contribute to the settlement one-half of any money it recovers in its
lawsuits against senior executives dismissed in connection with the
accounting debacle.
href='http://go.reuters.com/newsArticle.jhtml?type=businessNews&storyID=11141…'>Read
more.
A
Second Mistrial Is Declared in Fraud Case Against the Former Chairman of
Cendant
For the second time, the
fraud trial of Walter A. Forbes, the former chairman of the Cendant
Corporation, ended in a mistrial after the jury announced on Thursday
that it had failed to reach a unanimous verdict, according to the
New York Times
size='3'>today. Forbes, of
w:st='on'>New
Canaan
w:st='on'>
size='3'>Conn.
charged with conspiracy and securities fraud and with submitting false
reports to the Securities and Exchange Commission. Prosecutors said he
inflated income at CUC International, which merged in 1997 with HFS Inc.
to form Cendant, a real estate and travel services company. The stock
lost almost half of its value in one day when, three months after the
merger, Cendant disclosed evidence of accounting irregularities. The
Cendant case also resulted in the largest payment to settle a lawsuit
brought by shareholders who lost money in a fraud. Cendant paid $2.85
billion to settle, while its auditor, Ernst & Young, paid $335
million. Before it was eclipsed by WorldCom
face='Times New Roman'>and Enron, the Cendant case was
the largest accounting fraud in
w:st='on'>
size='3'>America
Company shareholders lost $19 billion after it was disclosed in
1998.
href='http://www.nytimes.com/2006/02/10/business/10cendant.html?_r=1&oref=slo…'>Read
more.
International
name='14'>Japanese Pension Plan Overhaul Approved
The Japanese government and
ruling coalition Thursday approved a plan to integrate the corporate
employees pension plan with the pension system for government workers,
the Daily Yomiuri reported today. They also approved a proposal
to replace additional tax-funded benefits to retired public servants
with a payment scheme comparable to discretionary corporate
supplementary benefit systems. Under the new plan, pension benefits for
public employees who have already retired will be reviewed and may be
cut. The current public employees' pension is split into three tiers,
the first being the basic pension, the second the income-linked portion
and the third the job categories addition. The new pension scheme will
integrate the three tiers. The third tier is worth about 20,000 yen
($168.24) a month to a typical household. This payment is funded by tax
money, and it has been severely criticized as a privilege only available
to public employees. The chairman of the Liberal Democratic Party's
Research Commission on the Social Security System, Yuya Niwa, said,
'There may be opposition toward pension unification, but the government
and the ruling parties should cooperate to assure the credibility of the
public pension scheme.'
href='http://www.yomiuri.co.jp/dy/national/20060210TDY02008.htm'>Read
more.
name='15'>LGPhilips Displays Bankruptcy Affects 17,000
Staff
The bankruptcy two weeks ago of
the Dutch holding company of LG Philips Displays, the world's biggest TV
and monitors picture tube maker, will affect all 17,000 staff,
administrator Louis Deterink told Reuters yesterday. 'Everything falls
under the bankrupt holding company, all 20 factories and over 17,000
employees,' he said.'This is one of the biggest bankruptcies we've seen
in Dutch history.' Besides Dutch companies, the German unit has now also
been declared bankrupt, while the French unit has registered for
insolvency and the Czech unit was in trouble, Deterink said. The
bankruptcy will likely result in a liquidation, not a recovery, and
banks owed more than $600 million could claim on global assets
including land, a creditor source said.
href='http://in.today.reuters.com/news/newsArticle.aspx?type=technologyNews&s…'>Read
more.
name='16'>Rolls-Royce Pension Deficit up 15
Percent
The growing pension crisis
gripping British business hit Rolls-Royce yesterday as the company
admitted its pension deficit rose 15 percent last year and it is looking
at ways to tackle it, a move that could include closure of its final
salary scheme, the Guardian reported today. Rolls-Royce's
pensions black hole has topped £1.15 billion ($2 billion),
while chemicals group ICI announced that its deficit at the end of 2005
had ballooned to £1.5 billion ($2.6 billion) from £1.04
billion ($1.82 billion) in 2004. The new pensions regulatory regime
means companies cannot run deficits in perpetuity but must close funding
gaps within a decade. Rolls-Royce has been seen as one of the more
paternalistic companies when it comes to pensions. Three years ago and
after consultations with staff representatives it reduced benefits
rather than close its final salary scheme - which includes most of its
22,000 British staff.
href='http://business.guardian.co.uk/story/0,,1706589,00.html'>Read
more.
href='http://business.guardian.co.uk/story/0,,1706589,00.html'>