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September 15,
2008
Banking and Insurance
Lehman Brothers to File for
Bankruptcy
Lehman Brothers announced early today that it will file
for bankruptcy, becoming the largest financial firm to fail in the
global credit crisis, after federal officials refused to help other
companies buy the venerable investment bank by putting up taxpayer money
as a guarantee, the Washington Post reported. Leaders of the
Federal Reserve and Treasury Department decided that Lehman was unlike
the investment bank Bear Stearns, whose sudden collapse in March
threatened the world financial system, or Fannie Mae and Freddie Mac,
whose potential insolvency did the same. Several firms, led by Bank of
America and the British bank Barclays, wanted control of Lehman's
investment banking and asset management businesses, but did not want
part of shaky real estate and other investments on Lehman's books, and
wanted either taxpayers or other financial firms to assume part of that
risk.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/09/14/AR2008091400355_pf.html'>Read
more.
Filing for bankruptcy protection is an unwelcome scenario for Lehman
Brothers, as the courts have special restrictions on brokerages, and
investors, counterparties, clients and workers stand to lose even more
confidence in the firm, according to an analysis by Reuters yesterday.
'Bankruptcy will give it an opportunity to try to slow down the
hemorrhaging, but its market value will continue to dissipate,' said ABI
Resident Scholar Jack Williams. Major players in the $455 trillion
global derivatives market met in a rare emergency trading session on
Sunday in an attempt to scale back exposure to Lehman and prevent toxic
assets from spilling into global markets. Unwinding the firm is still
likely to be a complicated endeavor due in part to the international
assets held by the firm and the fact that many of Lehman's assets are
longer-term financial obligations, said Mark Scarberry, a bankruptcy law
professor at Pepperdine University School of Law and former ABI Resident
href='http://www.reuters.com/articlePrint?articleId=USN1442799920080915'>Read
more.
Bank of America to Buy Merrill
Lynch
Merrill Lynch & Co. agreed late yesterday to sell itself to Bank of
America Corp. for $50 billion, the Wall Street Journal reported
today. The two firms said the directors of both companies had agreed to
the deal, which will be subject to shareholder and regulatory approvals.
Driven by CEO Kenneth Lewis, Bank of America has already made dozens of
acquisitions large and small, including the purchase of ailing mortgage
lender Countrywide Financial Corp. earlier this year. In adding Merrill
Lynch, it would control the nation's largest force of stockbrokers as
well as a well-regarded investment bank. The combination, if approved by
shareholders, would create a bank of vast reach involved in nearly
every area of the financial system, from credit cards and auto
loans to bond and stock underwriting, merger advice and wealth
management.
href='http://online.wsj.com/article/SB122145789965035677.html?mod=European-Business-News'>Read
more. (Subscription required.)
AIG Scrambles to Raise Cash, Talks
to Fed
Insurer American International Group Inc., succumbing to investor
pressure that drove its shares down 31 percent on Friday, is pulling
together a survival plan that includes selling off some of its most
valuable assets, raising more capital and going to the Federal Reserve
for help, the Wall Street Journal reported today. The measures
are aimed at staving off a downgrade by major credit-rating firms. AIG
executives worried that such an action would set off a chain reaction
that could be fatal to the firm. The insurer, which has already raised
$20 billion in fresh capital so far this year, was seeking to raise an
additional $40 billion to avoid a downgrade.
href='http://online.wsj.com/article/SB122142474136033581.html?mod=us_business_whats_news'>Read
more. (Subscription required.)
Fed Loosens Standards on Emergency
Loans
Even though the Federal Reserve refused to provide a financial backstop
to potential buyers of Lehman Brothers, concerns over what may unfold in
the market today led it to dramatically loosen its standards on making
emergency loans to major Wall Street investment banks, the New York
Times reported today. At the same time, a group of 10 major banks
agreed to contribute $7 billion each to an emergency borrowing facility
that any of the banks can tap if they run into a crisis similar to the
one faced by Lehman Brothers. The fund may grow in size as more banks
agree to contribute.
href='http://www.nytimes.com/2008/09/15/business/15fed.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
Delphi to Exit Bankruptcy by
2009
Delphi Corp. expects to emerge from bankruptcy protection by the end of
the year, propelled by an agreement with GM to take on $3.4 billion of
pension debt from its former subsidiary, the Detroit Free Press
reported on Saturday. The deal is part of a plan that raises the
automaker's stake in the recovery of its parts supplier and accelerates
those payments. Revised deals with GM have the automaker paying Delphi a
total of $10.6 billion, up from $6 billion in previous agreements. GM is
expected to pay $1.2 billion when the deals are approved, instead of
waiting until the supplier emerges from bankruptcy protection. A hearing
to approve the new plan is slated for Sept. 23.
href='http://www.freep.com/apps/pbcs.dll/article?AID=/20080913/BUSINESS01/809130314'>Read
more.
Bakery Giant to Exit Chapter
11
After four years under chapter 11 protection, Interstate Bakeries Corp.
says it has the financial commitments from lenders and work agreements
from unions needed to emerge as a standalone company, the Columbus
Dispatch reported yesterday. The company said Friday that it
intends to meet a Feb. 9 deadline to emerge from bankruptcy. As
currently envisioned, IBC said that creditors holding about $290 million
in unsecured debt and common shareholders would get nothing. The baking
company said Silver Point Finance and three other lenders that together
hold about $450 million of IBC's pre-petition secured debt have agreed
to $339 million in a new secured loan. Hedge fund Ripplewood Holdings
Inc. has committed $130 million in new capital.
href='http://www.dispatch.com/live/content/business/stories/2008/09/14/Interstate_bakeries.ART_ART_09-14-08_D2_BFBAGGK.html?type=rss==101'>Read
more.
NYRA Emerges from Bankruptcy Court
Protection
The operator of New York's three thoroughbred racetracks emerged from
two years of bankruptcy court protection Friday thanks to a $105 million
state bailout, the Associated Press reported. As part of its deal with
the state to keep the racing franchise for the next 25 years, the New
York Racing Association is ending its ownership claim to property at
Aqueduct, Belmont and Saratoga racetracks. As part of the bailout, the
state is writing off tens of millions of dollars owed to it by the NYRA.
The deal sets up a payment plan with $75 million going to creditors and
$30 million going to the NYRA.
href='http://news.yahoo.com/s/ap/20080912/ap_on_sp_ot/rac_racing_franchise_2=1;_ylt=Arfpp5h6tzrLxjjvVBMPZm2l24cA'>Read
more.
Consumers Union Seeks Bankruptcy
Protections for Retailers' Gift Cards
Consumers Union, the nonprofit publisher of Consumer Reports, filed a
petition Thursday with the Federal Trade Commission asking the agency to
protect shoppers from losing money on gift cards when retailers file for
bankruptcy, the Associated Press reported on Friday. __In its petition,
Consumers Union, joined by the Consumers Federation of America, National
Consumer Law Center and U.S. PIRG, urged the agency to require merchants
to segregate funds generated from gift card sales in a trust account and
to honor the gift card as long as the store remains open unless a
bankruptcy court orders otherwise. Consumers Union called on the FTC to
declare the sale of gift cards without segregating funds and holding the
money in trust to be 'an unfair and deceptive practice.'
href='http://www.baltimoresun.com/business/bal-bz.giftcards14sep14,0,7503639,print.story'>Read
more.
Fidelity to Buy Back $300 Million in
Auction-Rate Securities
Fidelity Investments said Friday that it will buy back $300 million
worth of auction-rate securities from its customers, becoming the first
major retail brokerage to make restitution in a wide-ranging
investigation, the Associated Press reported today. New York Attorney
General Andrew Cuomo said that Fidelity is the first so-called
'downstream' distributor -- rather than an underwriter -- to settle an
auction-rate securities probe, even though Fidelity didn't conduct
auctions. State and federal settlements have so far ordered brokerages
to pay $522 million in penalties. Fidelity has agreed to buy back the
securities from any of its customers including individuals, businesses
and charities. The securities were marketed as being as safe as cash
until the market froze up. The securities will be bought by the end of
the year.
href='http://www.law.com/jsp/law/LawArticleFriendly.jsp?id=1202424505071'>Read
more.
Judge Dismisses Fortunoff Chapter 11
Case
Bankruptcy Judge James M. Peck on Thursday granted
Fortunoff Fine Jewelry and Silverware LLC's Aug. 18 request to dismiss
its chapter 11 proceedings, Bankruptcy Law360 reported on
Friday. Fortunoff and its two affiliated limited liability companies are
now considered dissolved, according to the ruling, and the creditors are
now free to destroy their files. Judge Peck also signed off Thursday on
a deal Fortunoff reached with junior secured lenders. Fortunoff owed
approximately $19 million to the junior secured lenders, around $4
million of which was tied up in operations and accounts Fortunoff needed
to continue the bankruptcy proceedings, according to the Aug. 18
motion. Read
more. (Subscription required.)
Regulator Plans to Bar Severance
Packages for Fannie Mae, Freddie Mac CEOs
The Federal Housing Finance Agency said yesterday that it won't allow
Fannie Mae and Freddie Mac to make severance payments to the mortgage
companies' ousted chief executive officers, the Wall Street
Journal reported today. The agency, which regulates the two
mortgage giants, said that such payments wouldn't be made to Daniel Mudd
and Richard Syron, despite provisions in their contracts. Mudd served as
CEO of Fannie Mae and Syron was chairman and CEO of Freddie Mac until
last weekend, when the regulator seized control of the companies, saying
that they were in danger of running out of capital.
href='http://online.wsj.com/article/SB122143874240834469.html?mod=us_business_whats_news'>Read
more. (Subscription required.)