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October 26, 2009
U.S. Considers Reining In
“Too Big to Fail” Institutions
Congress and the Obama administration are about to
take up one of the most fundamental issues stemming from the near
collapse of the financial system last year: how to deal with
institutions that are so big that the government has no choice but to
rescue them when they get in trouble, the
face='Times 

New Roman'
size='3'>New York Times reported today. A
senior administration official said yesterday that after extensive
consultations with Treasury Department officials, House Financial
Services Chairman Barney Frank (D-Mass.) would introduce legislation as
early as this week to make it easier for the government to seize control
of troubled financial institutions, throw out management, wipe out the
shareholders and change the terms of existing loans held by the
institution. The White House plan as outlined so far would already make
it much more costly to be a large financial company whose failure would
put the financial system and the economy at risk. It would force such
institutions to hold more money in reserve and make it harder for them
to borrow too heavily against their assets. Setting up the equivalent of
living wills for corporations, that plan would require that they come up
with their own procedure to be disentangled in the event of a crisis, a
plan that administration officials say ought to be made public in
advance.
href='http://www.nytimes.com/2009/10/26/business/economy/26big.html?_r=1&ref=business&pagewanted=print'>Read
more.
In related news, the House Financial Services
Committee will hold a hearing on Thursday titled “Systemic
Regulation, Prudential Matters, Resolution Authority and
Securitization.”
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr_102209.shtml'>Click
here for more information.
House Oversight Committee
Targets Big Mortgage Lenders
The House Oversight and Government Reform Committee is
investigating the role of mortgage lenders in the financial crisis and
is seeking information from some of the biggest U.S. companies to
determine whether they used deceptive practices to lure borrowers
into the housing boom, the Associated Press reported on Friday.
Committee Chairman Edolphus Towns (D-N.Y.) said on Friday that the panel
also is issuing a subpoena to Countrywide Financial Corp. - now owned by
Bank of America Corp. - for records related to its so-called 'VIP'
program that provided mortgages to several senators and other officials
with preferential terms. Documents provided in response to the subpoena
will go to the House ethics committee. Towns said that the probe is
exploring 'whether mortgage companies employed deceptive and predatory
lending practices or improper tactics to thwart regulation, and the
impact of those activities on the current crisis.' Towns sent letters
seeking information on their mortgage programs from 2000-2008 to Bank of
America, Citigroup Inc., Wells Fargo, JPMorgan Chase & Co.,
Residential Capital (owned by GMAC) and U.S. Bank Home Mortgage. He set
a Nov. 13 deadline to receive the records.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/10/23/AR2009102302919_pf.html'>Read
more.
Regulator
Pushes for Derivatives Clearinghouse
Commodity Futures Trading Commission Chairman Gary
Gensler said on Friday that the Obama administration will still push for
legislation requiring that all financial derivatives go through a
clearinghouse, even though two House panels have rejected that
approach,
size='3'>CongressDaily reported on Friday.
Gensler said that a clearinghouse requirement is necessary to avoid
another breakdown of the financial system. The administration has
proposed that all standardized derivatives involving big banks go
through clearinghouses, while end-users such as airlines, manufacturers
and agribusiness -- which use such instruments to hedge against risk
– argue that the mandate would make trades prohibitively
expensive. Both the House Financial Services and House Agriculture
Committees in their recent markups carved out exceptions for trades to
go through a clearinghouse, which acts as central counterparty to
guarantee such transactions and absorb losses if it defaults. The two
panels did not require standardized trades -- such as futures and
options -- to go through a clearinghouse if an end-user was involved in
the transaction.
In related news, the House Financial Services
Committee will hold a mark-up hearing on Tuesday to consider the Private
Fund Investment Advisers Registration Act of 2009, Investor
Protection Act of 2009 and the Accountability and Transparency in Rating
href='http://www.house.gov/apps/list/speech/financialsvcs_dem/markup_102109.shtml'>Click
here for more information.
Commercial Lender Capmark
Files for Bankruptcy
The Capmark Financial Group, the big commercial real
estate finance company cobbled together from pieces of GMAC, filed for
bankruptcy yesterday after struggling with a heavy burden of failing
loans and debt stemming from its leveraged buyout three years ago,
the
size='3'>New York Times reported today. The
company had warned last month that it might seek chapter 11 protection
after it reported a $1.62 billion quarterly loss. Last month, the
company agreed to sell its mortgage loan and servicing business to
Berkshire Hathaway and Leucadia National for as much as $490 million.
That agreement carried a 60-day expiration date, or around Nov. 2
— unless Capmark filed for bankruptcy, which would give it 60 more
days to complete the sale. The Berkshire-Leucadia sale would be
structured as a 363 sale in the chapter 11 proeceeding in which
Berkshire-Leucadia would be deemed the stalking-horse bidder. In its
court filing yesterday, Capmark said that it had about $20.1 billion in
assets and $21 billion in liabilities as of June 30. About $10 billion
of Capmark’s assets reside in a Utah bank the company owns, which
will not be subject to a bankruptcy filing.
href='http://www.nytimes.com/2009/10/26/business/economy/26capmark.html?ref=business&pagewanted=print'>Read
more.
FairPoint Phone Company
Files for Bankruptcy
Telecommunications services provider FairPoint
Communications filed for chapter 11 protection today after agreeing on a
deal with key lenders that will help lower its debt by about 62 percent,
the Associated Press reported today. FairPoint, based in Charlotte,
N.C., owns and operates phone companies in 18 states with a total of
1.65 million lines. Its largest holdings by far are in Maine, New
Hampshire and Vermont, where it bought Verizon Communications Inc.'s
land lines and Internet network for $2.3 billion in 2008. The bankruptcy
filing was widely anticipated as the company has negotiated with banks
and bondholders to restructure its debt. The restructuring deal with
lenders holding more than half of its outstanding secured debt will
allow the company to reduce its debt from $2.7 billion to $1 billion,
according FairPoint CEO David Hauser.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/10/26/AR2009102600735_pf.html'>Read
more.
Court Refuses Equity
Committee in Spansion Chapter 11
The bankruptcy court overseeing Spansion Inc.’s
chapter 11 case has rejected an investor’s attempt to form a
equity-holder committee to represent stockholders during the technology
company’s restructuring,
face='Times 

New Roman'
size='3'>Bankruptcy Law360 reported on Friday.
Bankruptcy Judge
face='Times





New
Roman'
size='3'>Kevin J. Carey dismissed Philip
Mathers’ request with prejudice because the investor, who resides
in the U.K., declined to appear at a hearing scheduled early this month
to debate the need for such a committee. In a letter to the court,
Mathers said his career and location prevented him from appearing at the
hearing but pointed out that the debtor’s opposition to an
equity-holder committee underscores the need for shareholder
representation. The case is
face='Times 

New Roman'
size='3'>In re Spansion Inc., case number
09-10690, in the U.S. Bankruptcy Court for the District of
Delaware.
href='http://bankruptcy.law360.com/articles/130115'>Read
more. (Subscription required.)
Congoleum Submits Revised
Chapter 11 Proposal
On the heels of insurers’ failed attempt to
appeal a ruling reinstating the case, bankrupt flooring company
Congoleum Corp. on Thursday submitted a revised reorganization proposal
with the support of bondholders and asbestos claimants,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported on Friday.
The new plan comes just a few weeks after a group of liability insurers
lost their bid to appeal a federal court’s decision to reinstate
Congoleum’s long-running chapter 11 case, which was initially
dismissed by the bankruptcy court in conjunction with the rejection of a
previous reorganization plan by the company. As with previous plans, the
revised proposal calls for allowing a reorganized Congoleum to emerge
from chapter 11 protection without asbestos liability claims by
channeling those claims to an asbestos liability trust, to be funded in
part by insurance proceeds.
href='http://bankruptcy.law360.com/print_article/130014'>Read
more. (Subscription required.)
Court Orders Trump to
Disclose Casino Investments
Bankruptcy Judge
face='Times 

New Roman'
size='3'>Judith H. Wizmur on Thursday ordered
Donald Trump and lender Beal Bank to disclose specific details about the
stake they hold in bankrupt Trump Entertainment Resorts
Inc., Bankruptcy Law360 reported
on Friday. Judge Wizmur set a deadline of Nov. 13 for both Trump and
Beal, the lender Trump is working with in his bid to retake control of
the casino, to disclose specifics required under U.S. bankruptcy law.
During a telephone conference call on Wednesday, counsel for the ad hoc
group of noteholders asked the court to direct Beal and Trump to comply
with Rule 2019 of the Federal Rules of Bankruptcy Procedure, the judge
said. “It appears that both Beal Bank and Donald Trump qualify as
'entities' who represent more than one creditor or equity security
holder in the case,' according to Judge Wizmur’s order.
'Accordingly, compliance with Rule 2019 is required.' The judge did
grant both Beal and Trump a 10-day period to ask the court to reconsider
the decision, through Nov. 2, noting that they were not given advance
notice of the noteholders' request.
href='http://bankruptcy.law360.com/print_article/130052'>Read
more. (Subscription required.)
The number of banks that have failed so far this year
topped 100 on Friday - hitting 106 by the end of the day - the most in
nearly two decades, the Associated Press reported on Friday. Dozens,
perhaps hundreds, of other banks remain open even though they are as
weak as many that have been shuttered. Regulators are seizing banks
slowly and selectively - partly to avoid inciting panic and partly
because buyers for bad banks are hard to find. This year's 106 bank
failures are the most in any year since 181 collapsed in 1992 at the end
of the savings-and-loan crisis. On Friday, regulators took over three
small Florida banks - Partners Bank and Hillcrest Bank Florida, both of
Naples, and Flagship National Bank in Bradenton - along with four
elsewhere: American United Bank of Lawrenceville, Ga., Bank of Elmwood
in Racine, Wis., Riverview Community Bank in Otsego, Minn., and First
Dupage Bank in Westmont, Ill.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/10/24/AR2009102400301_pf.html'>Read
more.
New York Delays $959
Million Payment to Pension Fund
New York State, facing a $3.1 billion deficit and a
cash squeeze, deferred a September payment to its $116.5 billion pension
fund, forfeiting more than it would have cost to borrow the needed
funds, according to Bloomberg News reported on Friday. By delaying the
$959.1 million payment, which isn’t legally required until March
1, the state sacrificed an 8 percent annualized discount equal to $6.1
million a month, said Matt Anderson, a spokesman for the New York
Division of the Budget. The delayed payment causes no harm to the
pension fund that covers 1.05 million workers and retirees,
“though it isn’t the sort of thing you want to see year
after year,” said Comptroller Thomas DiNapoli, the plan’s
sole trustee. The fund has assets equal to 100 percent of its
liabilities, as calculated by actuaries, he said. New York, the
third-largest U.S. state by population, has an AA rating from Standard
& Poor’s for bonds backed by its general obligation
pledge.
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=aTXLmNLxluZs'>Read
more.
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