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August 1, 2007
Mortgages
name='1'>Wall Street, Bear Stearns Hit Again by Investors Fleeing
Mortgage Sector
The nation's weak housing
sector sent another shudder through Wall Street, with insurers and
lenders taking further hits and Bear Stearns Cos. shutting off
withdrawals from a mortgage-investment fund, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The stock market, which had been up sharply
early yesterday, reversed course abruptly amid renewed concerns about
loans and securities derived from home mortgages. The Dow Jones
Industrial Average, which had been up more than 140 points, closed down
146.32 points, or 1.1 percent from a day earlier, at 13211.99 -- a swing
of nearly 300 points, or more than 2 percent. Traders said yesterday's
stock-market selloff was ignited by a warning from American Home
Mortgage that pressure to repay its creditors may cause it to liquidate
its assets. Its shares subsequently plunged 89 percent to $1.13. Several
Wall Street firms have loaned money to American Home, the
10th-largest
w:st='on'>
size='3'>U.S.
size='3'>home-mortgage lender in this year's first half, according
to Inside Mortgage
Finance. In recent weeks, as the housing
market continued to weaken and trading firms began to price many
mortgage investments at discounted levels, unlike Bear's other two hedge
funds that fell victim to subprime investments, its Asset-Backed
Securities Fund borrowed no capital and had practically no exposure to
subprime mortgages. But a combination of markdowns on a broad range of
mortgages and a series of refund requests could force the fund out of
business.
href='http://online.wsj.com/article/SB118591963252683893.html?mod=hpp_us_whats_news'>Read
more . (Registration required.)
name='2'>Commentary: Adjustable-Rate Mortgage Resets Likely to Cause
Further Housing Pain
The pool of people
falling behind on their house payments is starting to widen, and
adjustable-rate mortgages are the main reason, according to a commentary
in today’s New
York Times. Starting in the spring of 2005,
these mortgages began to get a lot more popular, largely because regular
mortgages no longer allowed many buyers to afford the house they wanted.
Buyers turned instead to a mortgage that had an artificially low
interest rate for an initial period, before resetting to a higher rate.
The peak month for the resetting of mortgages will come this October,
according to Credit Suisse, when more than $50 billion in mortgages will
switch to a new rate for the first time. The level will remain above $30
billion a month through September 2008. In all, the interest rates on
about $1 trillion worth of mortgages, or 12 percent of the
nation’s total, will reset for the first time this year or
next.
href='http://www.nytimes.com/2007/08/01/business/01leonhardt.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
face='Times New Roman' size='3'>
name='3'>Marathon
size='3'>, Enron to Settle Turbine Generator Suit
Edging closer to the
settlement of a dispute over warranties that has dragged on for almost
six years, Marathon Electric Manufacturing Corp. on Tuesday entered into
an agreement with Enron Corp. to resolve all matters between it and the
defunct energy company's wind division,
size='3'>Bankruptcy Law360 reported yesterday.
Under the terms of the new settlement agreement, Enron Wind will fully
release and discharge
claims in the lawsuit. In return, Enron Wind will receive a monetary
payment. The after-tax impact of
face='Times New Roman'
size='3'>Marathon
around $1.15 million. The settlement agreement is still subject to court
approval by the U.S. Bankruptcy Court for the Southern District of New
York.
size='3'>Marathon
to approve the settlement is expected to be filed before the third
quarter of 2007.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=31068'>Read
more. (Registration required.)
KPMG
Looks to Limit Probe in New Century Case
KPMG LLC is battling to limit
the scope of a probe into its work for New Century
face='Times New Roman'>Financial Corp., arguing that the
discovery being sought by the beleaguered subprime lender’s
examiner is “fundamentally at odds” with mandatory dispute
resolution procedures,
size='3'>Bankruptcy Law360 reported yesterday.
KPMG, New Century’s former independent auditor, said in court
documents filed Friday that the two companies had previously agreed that
the sole methodology for resolving any dispute arising from KPMG’s
services to New Century would be through alternative dispute resolution
rather than in the courts. The court-appointed examiner in the case,
Michael J. Missal, has been seeking court approval of his investigation
of KPMG.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=31031'>Read
more. (Registration required.)
name='5'>Asarco Contests $406 Million Cleanup Costs
Asarco LLC is contesting
the U.S. Department of Justice's claim that the bankrupt mining and
smelting company is responsible for releasing 168,000 tons of lead into
the area surrounding a now-defunct smelting and refining facility in
Omaha, Neb., and should pay the $406 million bill for cleaning up the
contaminated area,
size='3'>Bankruptcy Law360 reported yesterday.
A trial to assess Asarco's liability for cleanup costs at the site is
slated for Aug. 6-9, according to court papers. The court will be asked
to endorse the
w:st='on'>
size='3'>U.S.
face='Times New Roman'> Environmental Protection
Agency's plan to remove and replace yard soils at more than 16,000 homes
in
size='3'>Omaha, and assign
the entirety of the plan's costs Asarco. The company contends,
however, that the lead the EPA has been cleaning up comes from
“deteriorating lead-based paint on homes,” and not from
Asarco's facility.
href='http://bankruptcy.law360.com/secure/ViewArticle.aspx?Id=31029'>Read
more . (Registration required.)
name='6'>Bankruptcy Fraud Charges Brought Up against Two
Ohioans
Federal prosecutors have
charged two
face='Times New Roman' size='3'>Lima
size='3'>,
size='3'>Ohio
investors with bank fraud and bankruptcy fraud, saying the men defrauded
lenders of $2.2 million by “flipping” properties to inflate
values, creating phony rental and purchase agreements, and failing to
disclose the actual buyers and their debts, the
face='Times New Roman' size='3'>Toledo Blade
size='3'>reported today. Charged in U.S. District Court in
size='3'>Toledo
Frye and Matthew Ebbeskotte, who prosecutors say formed Skyway
Partnership Investments LLC in 1999 and arranged for the purchase of 46
properties through falsified mortgage-loan documents. In 2002, they,
along with other family members, filed bankruptcies in
w:st='on'>
size='3'>Toledo
discharge the mortgage debt, prosecutors say. Prosecutors contend that
the men directed others to falsify loan applications and settlement
documents, forged purchase and lease agreements, and collected about
$368,000 in consulting fees for the transactions over a three-year
period from 1999 to 2002.
href='http://toledoblade.com/apps/pbcs.dll/article?AID=/20070731/BUSINESS03/70731046'>Read
more.
name='7'>GM Extends
w:st='on'>
size='3'>Detroit
Streak, But Warns Problems Remain
General Motors Corp.'s
better-than-expected second-quarter profit, following Ford Motor Co.'s
surprise profit results last week, shows
w:st='on'>
size='3'>Detroit
cost-cutting efforts are beginning to pay off, but company officials are
skeptical about a quick rebound in its core North American operations,
the Wall Street
Journal reported today. GM, Ford and
DaimlerChrysler AG's Chrysler Group are in negotiations with the United
Auto Workers union and hope to reach a transformative deal allowing them
to better compete against the likes of Toyota Motor Corp. GM North
America had a quarterly loss of $39 million, compared with a
year-earlier loss of $3.95 billion after restructuring charges.
Excluding such costs, GM's North American operations reported a slight
profit. The profit reports from GM and Ford could make winning
concessions more difficult with the union, which has agreed to cutting
thousands of jobs and to concessions on retiree health benefits. GM
argued that the situation in
face='Times New Roman' size='3'>North America
size='3'>remains tough. July sales results today could underscore the
threat
size='3'>Detroit faces from
high gasoline prices and the weak housing market, which have softened
demand for the most profitable pickups and sport-utility
vehicles.
href='http://online.wsj.com/article/SB118580113167982172.html?mod=hpp_us_whats_news'>Read
more. (Registration required.)
name='8'>Northwest Turns Profit after Chapter 11
Northwest Airlines Corp., which
emerged from bankruptcy protection May 31, earned $273 million during
its second quarter before accounting boosts related to its
reorganization, the Associated Press reported yesterday. However, flight
cancellations and rising fuel costs could hurt the airline as it looks
to continue turning a profit. The nation's fifth-largest airline
canceled 73 of 1,417 flights scheduled Tuesday, according to
FlightStats.com, as its struggle to find enough pilots continued. Oil
futures, which set a record high of more than $78 a barrel, were another
headwind. Northwest said that overall capacity would be flat to down 1
percent in the third quarter, with domestic capacity down 4 to 5 percent
and international flying increasing at least 6 percent. It said it
believes it has already adjusted its schedule to account for oil in the
$75 range, but believes other carriers may have to cut capacity if oil
remains at this level.
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/07/31/AR2007073100571_pf.html'>Read
more.
name='9'>Harvard Endowment Suffers Losses from Hedge
Fund
In the past month,
size='3'>Havard
face='Times New Roman'
size='3'>University
size='3'>lost about $350 million through an investment in hedge fund
Sowood Capital Management, the
size='3'>Wall Street Journal reported today.
While $350 million is a relatively small hit for the $29 billion Harvard
endowment, the nation's largest, it highlights the risks as colleges and
pensions nationwide embrace nontraditional investments such as hedge
funds and private equity. Investments like these are less regulated than
more traditional options, and often engage in the risky practice of
investing borrowed money in hopes of amplifying their returns. Sowood
chalked up three years of gains for Harvard, but recently ran into
difficulties navigating troubles in the bond market, suffering losses
last month that cut the firm's assets in half to $1.5 billon.
href='http://online.wsj.com/article/SB118592952266684146.html?mod=hpp_us_whats_news'>Read
more. (Registration required.)
International
name='10'>Report: Insolvency Rates Likely to Increase for British
Businesses
Accounting firm Deloitte &
Touche said yesterday that more British companies are expected to file
for administration in the coming months amid high debt levels and rising
interest rates, Reuters reported today. Sectors such as food processing
are particularly vulnerable as they have been squeezed by rising costs
of raw materials and on their profit margins, Deloitte said in a report.
Highly indebted businesses in the property and construction industries
may also suffer soon as interest rate rises put a squeeze on growth in
property values. During the first six months of 2007, as many as 1,205
British companies filed for administration, down 15 percent from the
same period last year, Deloitte said. However, the firm said that it is
seeing “more work dealing with troubled companies, which were
acquired from earlier failed enterprises and which are now beginning to
fail again with increasing momentum.'
href='http://investing.reuters.co.uk/news/articleinvesting.aspx?type=allBreakingNews&storyID=2007-07-31T103326Z_01_L31114423_RTRIDST_0_BRITAIN-INSOLVENCIES.XML'>Read
more.
name='11'>Russian Spaceship Maker Fights
Bankruptcy
w:st='on'>
size='3'>Russia's
main producer of spacecraft is to be put into emergency administration
to fight off bankruptcy, Reuters reported yesterday. The Energia Rocket
and Space Corporation is the main Russian contractor for the
international space station and also makes satellites and rockets. It
was unclear if
w:st='on'>
size='3'>Russia
space program would be affected. 'We intend to introduce emergency
administration for the corporation, because the financial idealism that
existed here has led not to flights to the moon, but to bankruptcy,'
according to company chairman Vitaly Lopota.
href='http://www.cnn.com/2007/TECH/space/07/31/russia.space.bankruptcy.reut/index.html?section=cnn_latest'>Read
more.
TROUBLED COMPANIES IN THE
NEWS
The business news articles
below are taken from the U.S. Business Journal’s Daily Summary of
Troubled & Fast Growing U.S. Companies which is published by Bastien
Financial Publications.
face='Times New Roman' size='3'>ABI
size='3'>Members receive a 50% discount off of our regular subscription
rate of $500 when subscribing to the complete Daily
Summary.
title='blocked::mailto:steve@creditnews.com
mailto:steve@creditnews.com' href='mailto:steve@creditnews.com'>
face='Times New Roman' color='#0000ff'
size='3'>steve@creditnews.com
size='3'>or call 800-407-9044—use
w:st='on'>
size='3'>ABI
37
size='3'>American Home Mortgage Investment
size='3'>’s stock trading was halted by the New York Stock
Exchange before the opening bell after the firm said that it would
suspend dividends and that it was also looking at “significant
margin calls” from its banks. American Home, whose stock price is
already down 70% for the year, saw its stock price plummet 39% in
premarket trading. The Melville, N.Y. firm specializes in so-called
“Alt-A” loans, which are made to people with fair but not
outstanding credit.
size='3'>Andrew Corp., the
w:st='on'>
size='3'>Westchester
telecom gear, reported a loss of $95.7 million in the third quarter, its
fourth-straight quarter in the red. The firm blamed increased costs.
Revenue declined slightly–to $546 million. Andrew is
currently in a deal to be purchased by CommScope Inc. of
size='3'>Hickory
w:st='on'>
size='3'>N.C.
billion.
size='3'>Arvin Meritor Inc., the
size='3'>Troy
automotive supplier, reported a third quarter net loss of $70 million,
including restructuring charges of $24 million. Revenue declined
4%–to nearly $1.7 billion. While Arvin Meritor enjoyed strong
business in
size='3'>Western Europe
Asia-Pacific regions, it suffered from the downturn in the North
American truck market. Last November, the manufacturer announced a
restructuring and consolidation in moves that will cost it $325 million
over the next five years.
size='3'>Celebrate Express Inc., a
size='3'>Kirkland
w:st='on'>
size='3'>Wa
party products, reported a fourth quarter net loss of $60,000. Sales
fell 17%–to $20 million. For the year its net income tumbled
89%–to $40,000, on a 2% drop in sales–to $85.2
million.
size='3'>Foot Locker Inc., the Manhattan,
N.Y.-based athletic footwear retailer, will close 250 of its stores in
the
face='Times New Roman'
size='3'>U.S.
nearly twice the number it had earlier contemplated. The retailer will
also trim its
w:st='on'>
size='3'>U.S.
size='3'>inventory as it expands its presence in the European market in
an effort to improve its operations both domestically and
overseas. Foot Locker may also be looking for a buyer, as it hired
Lehman Brothers Holdings Inc. to advise it on strategic alternatives.
Meanwhile Foot Locker, now with about 4,000 stores in twenty countries,
anticipates a loss of up to 20 cents a share in the second
quarter.
size='3'>Mediware Information Systems Inc.,
a
size='3'>Lenexa, Ks.
provider of blood and medication-management software systems, closed one
of its offices, consolidated three business units and said that it laid
off twenty employees as part of an effort to improve its
operations.
size='3'>Rose Furniture, a
w:st='on'>
Point,
w:st='on'>
size='3'>N.C.
retailer, will sell off its remaining assets in August in an attempt to
raise cash to pay its creditors.
size='3'>Sowood Capital Management, a
size='3'>Boston
hedge-fund company, told investors that it will wind down two of its
funds after suffering losses of more than 50% in July because of losses
in the credit market. Sowood will sell its portfolio to another
hedge fund and return the remaining $1.5 billion to
investors.
href='http://search.news.yahoo.com/search/news?p=bankruptcy&n=20&c=news'>