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August 6, 2008
Freddie Mac Posts Large Second Quarter
Loss
Freddie Mac posted a second-quarter loss as it booked $2.5 billion in
credit-loss provisions and wrote down the value of $1 billion in
securities, the Wall Street Journal reported today. The company
again reiterated its intent to raise $5.5 billion in capital -- and
possibly more -- and said that it has recommended board approval to cut
its third-quarter dividend on common stock to 'five cents or less' a
share from the second quarter's 25 cents. The latest financial results
for the government-sponsored enterprise included a write-down from
available-for-sale securities primarily related to ones backed by
subprime or Alt-A mortgages, which have seen deteriorating credit
quality.
href='http://online.wsj.com/article/SB121801001168516369.html?mod=hps_us_whats_news'>Read
more. (Subscription required.)
Treasury Department Hires Morgan
Stanley for Advice on Freddie Mac, Fannie Mae Rescue Plan
The Treasury Department, which recently received authority to help shore
up Fannie Mae and Freddie Mac, hired Morgan Stanley to provide 'market
analysis and financial expertise' in connection with its rescue plan,
the Wall Street Journal reported today. Congress recently
agreed to allow the Treasury to provide an unlimited line of credit to
the mortgage titans and take an equity stake in either company over the
next 18 months. Treasury Secretary Henry Paulson has said he has no
plans to use the agency's new authority but had asked for it to help
reassure the markets. Morgan Stanley won't have access to Fannie's or
Freddie's books and records, other than what is publicly available. The
Wall Street bank will help the Treasury understand the companies'
capital positions and help it decide whether -- and how -- to pull the
trigger on using its new authority.
href='http://online.wsj.com/article/SB121797230260314613.html?mod=us_business_whats_news'>Read
more. (Subscription required.)
Commentary: Congressional Action
Needed on Credit Card Abuse
While the Federal Reserve should swiftly adopt its proposed rules
against unfair or deceptive credit card practices, the real burden to
curb these abuses falls on Congress to ensure fair lending practices,
according to an editorial in today's New York Times. The Fed
received 56,000 responses by the time it closed its comment period this
week on its proposed rules on abusive credit card practices. Congress
took a step in the right direction when the House Financial Services
Committee last week approved a cardholders' bill of rights that would
end such practices as universal default and double-cycle billing. This
borrowers' bill of rights should move quickly to the House floor, and
Senate Banking Committee Chair Christopher Dodd (D-Conn.) should support
similar legislation in his chamber.
href='http://www.nytimes.com/2008/08/06/opinion/06wed1.html?ref=opinion&pagewanted=print'>Read
the editorial.
Mr. Bubble Producer Files for
Bankruptcy
Ascendia Brands Inc., a health and beauty care products maker whose
brands include Mr. Bubble bath foam, filed for chapter 11 protection
yesterday, Reuters reported. The manufacturer and distributor said it
has begun talks with prospective buyers, and expects to complete a sale
by Sept. 30. Holders of its 42 million common shares would likely
receive nothing for their holdings, Ascendia said. Based in Hamilton,
N.J., Ascendia said that it was strapped with rising raw material costs,
lower-than-expected sales of its Calgon and Healing Garden brands and
higher-than-expected returns from some customers. Ascendia and five
affiliates filed for protection with the U.S. Bankruptcy Court in
Wilmington, Del. It said it had $194.8 million of assets and $279
million of liabilities as of July 5, and lost $21.1 million from March
to June.
href='http://www.reuters.com/article/marketsNews/idINN0535634520080805?rpc=44'>Read
more.
SemGroup's $150 Million Bankruptcy
Loan Approved by Judge
SemGroup LP, the oil transporter pushed into bankruptcy by $2.4 billion
in energy-trading losses, received approval from Bankruptcy Judge
Brendan Linehan Shannon to borrow as much as $150
million to keep operating while it prepares to sell its assets,
Bloomberg News reported today. Judge Shannon overruled objections from
oil producers and energy services companies that complained that the
financing deal gave lenders a higher payment priority. SemGroup, based
in Tulsa, Okla., filed for bankruptcy last month, blaming a liquidity
crisis caused by oil-trading losses and margin-call payments of $1.96
billion. The company said that it has assets worth about $6.14 billion
and debt of $7.53 billion.
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=aLeVYIp5_dEs'>Read
more.
FirstFed Financial Grapples with
Payment-Option Mortgages
Though FirstFed Financial Corp. was held in high regard last year by
experts because it appeared to have pared back on risky mortgage loans,
the Los Angeles bank is on the front lines of what could be the next big
mortgage debacle: payment-option mortgages, the Wall Street
Journal reported today. Barclays Capital estimates that as many as
45 percent of “option ARMs,” originated in 2006 and 2007,
could wind up in default. Another analysis, by UBS AG, suggests that
defaults on option ARMs originated in 2006 could be as high as 48
percent, slightly higher than its estimate for defaults on subprime
loans. Option ARMs typically carry a low introductory rate and give
borrowers multiple payment choices, including a minimum payment that may
not even cover the interest due. Instead of waiting for borrowers to
fall behind, the company sends borrowers letters as their loan balances
swell, offering them a chance to modify their mortgages. From January
through June, the company had modified 705 loans totaling $345
million.
href='http://online.wsj.com/news/us_business?mod=2_0002'>Read
more. (Subscription required.)
Fed Holds Rate Steady Amid Growth,
Inflation Concerns
The Federal Reserve left interest rates unchanged at 2 percent as it
remains stuck between worries about rising prices and renewed concerns
about slower growth, the Wall Street Journal reported today.
'Although downside risks to growth remain, the upside risks to inflation
are also of significant concern,' the Fed said in announcing its
decision to leave its target for the federal funds rate, charged on
overnight loans between banks, at 2 percent. The vote for the rate
decision was 10-1. Federal Reserve Bank of Dallas President Richard
Fisher cast his fifth dissent of the year, preferring a rate
increase.
href='http://online.wsj.com/article/SB121795651469613777.html?mod=hpp_us_whats_news'>Read
more. (Subscription required.)
Justice Department Indicts 11 in
Largest U.S. Identity Theft Case
The Justice Department charged 11 people with stealing more than 40
million credit and debit card numbers from nine retailers including T.J.
Maxx, calling it the largest U.S. identity theft prosecution, Bloomberg
News reported yesterday. The defendants tapped the computer networks of
TJX Cos.' Marshalls, BJ's Wholesale Club Inc., Barnes & Noble Inc.
bookstores, Sports Authority, Boston Market Corp., OfficeMax Inc., Dave
& Buster's restaurants, DSW Inc. shoe stores and Forever 21, the
government said today. Indictments by federal grand juries in Boston and
San Diego charged three U.S. residents and defendants from other
countries including Estonia, Ukraine and China with identity theft,
fraud and conspiracy, the Justice Department said. The
defendants allegedly hacked into retailers' data systems by driving
around the stores with a laptop, kept the information in personal
computers in the United States and eastern Europe and converted some of
it into ready-to-use bank cards, according to federal
prosecutors.
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=ak408J6tmJig&refer=home'>Read
more.
Frontier Airlines Moves Forward with
Alternative DIP Deal
Abandoning an earlier offer from private investment firm Perseus LLC,
Frontier Airlines Holdings Inc. said Monday that it was moving forward
with an alternate plan for $75 million in debtor-in-possession financing
that may help the struggling airline emerge from bankruptcy,
Bankruptcy Law360 reported. Monday's agreement with Republic
Airways Holdings Inc., AQR Capital and affiliates of Credit Suisse
Securities comes just a week after the airline said it had secured a
commitment from private investment firm Perseus for $75 million in DIP
financing. Upon court approval, the new group of lenders will provide
immediate funding of $30 million to support Frontier's working capital
needs. The lenders will consider funding an additional $45 million
subject to the terms and conditions of the DIP credit agreement.
href='http://bankruptcy.law360.com/articles/65075'>Read more.
(Subscription required.)
International
Europe Looks to Handle Political Fallout
from Pension Cuts
Faced with an aging population, much of Europe is trying to
address the pressing need for change in national pension systems,
balancing rising costs with political pressure, the New York
Times reported today. Reforms taken by some
European governments include Italy gradually raising the retirement
age to 59 and France increasing the tenure requirement for government
workers to receive full pension benefits to 40 years of service. Germany
also curtailed annual government pension increases and raised the
retirement age by two years, to 67. However, inflation and a squeeze on
living standards for older workers are causing a backlash, leading some
governments to reconsider - or even suspend - approved reforms.
href='http://www.nytimes.com/2008/08/06/business/worldbusiness/06pension.html?ref=business'>Read
more.