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May 11, 2009
President Obama Continues
Push for Credit Card Reforms as Senate Begins Debate
President Obama used his weekly radio and Internet
address to reiterate his call for credit card reform, saying that the
nation can no longer tolerate an 'anything goes' mentality by the credit
card companies, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported on Saturday. Obama has urged Congress to pass
legislation that would do away with some of the most aggressive fees,
penalties and interest rates levied by the credit card companies on
their cardholders. Last month, he met with the heads of the largest
credit card companies to urge them to get on board with the reforms. The
president said that Congress should finish action on a bill soon so that
he can sign it into law by Memorial Day.
href='http://voices.washingtonpost.com/44/2009/05/09/obama_urges_credit_card_reform.html?wprss=44'>Read
more.
In related news, the Senate today will begin
consideration of legislation that would place restrictions on credit
card fees and interest rate policies that have been labeled abusive by
consumer groups,
face='Times New Roman' size='3'>CongressDaily
size='3'>reported. Senate Banking Chairman Christopher Dodd (D-Conn.)
was working on a compromise with ranking member Sen. Richard Shelby
(R-Ala.) on legislation Dodd moved out of his panel on a party-line vote
this year. The underlying measure would prohibit issuers from raising
rates on existing balances retroactively, require a 45-day notice of any
rate increase and ban billing on balances for days not included in the
last billing cycle as a result of a grace period. The two were focusing
at the end of last week on a few contentious issues: language that would
repeal Federal Reserve language allowing retroactive rate increases for
payments made 30 days late and a requirement that gift cards be valid
for five years. Banks are against repealing the Fed language, while
consumer groups have been equal in their support, arguing that many
customers who make late payments have lost their jobs during the
recession and should not be unfairly penalized. The two provisions were
not contained in a House-passed bill that the Obama administration
supported.
Banks Brace for Credit Card
Write-Offs
Experts predict that millions of Americans will not be
able to pay off their debts, leaving a gaping hole at ailing banks still
trying to recover from the housing bust, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. The bank stress test results, released
Thursday, suggested that the nation’s 19 biggest banks could
expect nearly $82.4 billion in credit card losses by the end of 2010
under what federal regulators called a “worst case” economic
situation. However, if unemployment breaches 10 percent, as many
economists predict, the rate of uncollectible balances at some banks
could far exceed that level. At American Express and Capital One
Financial, around 20 percent of the credit card balances are expected to
go bad over this year and next, according to stress test results. At
Bank of America, Citigroup and JPMorgan Chase, about 23 percent of card
loans are expected to sour.
href='http://www.nytimes.com/2009/05/11/business/11credit.html?ref=business&pagewanted=print'>Read
more.
Autos
Is Almost Inevitable
For General Motors Corp., the task at hand is so
difficult that experts say a chapter 11 filing is all but inevitable,
the Associated Press reported yesterday. To remake itself outside of
court, GM must persuade bondholders to swap $27 billion in debt for 10
percent of its risky stock. In the span of three weeks, the
automaker must work out deals with its union, announce factory closures,
cut or sell brands and force hundreds of dealers out of business. 'I
just don't see how it's possible, given all of the pieces,' said
Prof.
size='3'>Stephen J. Lubben of Seton Hall
University School of Law. GM, which has received $15.4 billion in
federal aid, faces a June 1 government deadline to complete its
restructuring plan. If it can't finish in time, the company will follow
Detroit competitor Chrysler LLC into bankruptcy protection. Although
company executives said last week they would still prefer to restructure
out of court, experts say all GM is doing now is lining up majorities of
stakeholders to make its court-supervised reorganization move more
quickly.
href='http://asia.news.yahoo.com/ap/20090511/twl-us-gm-inevitable-bankruptcy-ef375f8.html'>Read
more.
In related news, General Motors Corp. has hired an
executive-search firm to help find replacements for at least half of its
12 directors, reflecting the Obama administration's increasing influence
over the automaker, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. Interim GM Chairman Kent Kresa has hired New
York-based Spencer Stuart to help him in a bid to line up new directors
to join the board as early as this summer. Kresa, along with GM Chief
Executive Fritz Henderson, was named to his post in late March by the
U.S. Treasury Department after the government forced out the former
chairman and CEO, Rick Wagoner.
href='http://online.wsj.com/article/SB124199416094004699.html'>Read
more. (Subscription required.)
Chrysler Creditors Give
Up Challenge to Government Restructuring Plan
A group of Chrysler LLC lenders who opposed the
government's restructuring plan for the automaker agreed to abandon the
fight after deciding that the financial and political costs were too
high, the
size='3'>Wall Street Journal reported on
Saturday. The creditors withdrew their legal protest on Friday after two
of the larger funds, OppenheimerFunds and Stairway Capital, left the
dissident group. The two funds also indicated they would accept the
outcome of the automaker's bankruptcy court proceedings. The collapse of
the organized opposition removes the final significant hurdle to the
Obama administration's efforts to get Chrysler reorganized swiftly in
chapter 11 proceedings. The company could now emerge from the process as
early as next month in a new alliance with Italy's Fiat SpA.
href='http://online.wsj.com/article/SB124179307149900931.html'>Read
more. (Subscription required.)
Commentary: Ford
Continues to Restructure Without Federal Help
While the government has needed to step in
to help Chrysler and General Motors restructure, Ford is the only
Detroit automaker to forego government assistance to this point,
according to a commentary in today’s
face='Times
New
Roman' size='3'>Wall Street Journal. While
General Motors and Chrysler will emerge from the government
restructuring with significantly reduced debt, Ford will still likely be
obliged to repay its lenders. Ford also might emerge from the current
crisis as the largest American automaker for the first time in more than
80 years. GM had 18.6 percent of the market in the first quarter of this
year to Ford's 14.7 percent. However, GM's lead could be wiped out when
the company sheds four or five brands to satisfy President Barack
Obama's automotive task force.
href='http://online.wsj.com/article/SB124199912671905001.html#'>Read
more. (Subscription required.)
SEC Chief Backs Idea of
“Systemic Risk Council”
Securities and Exchange Commission Chairman Mary
Schapiro said that she favors a new proposal for federal regulators
sharing oversight of companies that pose financial risks to the economy,
the Associated Press reported on Friday. Schapiro said she's 'inclined
toward' the idea floated this week by Federal Deposit Insurance Corp.
Chair Sheila Bair for a new 'systemic risk council' to monitor large
institutions against financial threats. The council would include the
Treasury Department, Federal Reserve, FDIC and SEC, according to
Bair’s proposal. Some key lawmakers have proposed that the Fed
alone assume the role of systemic regulator. However, Senate Banking
Committee Chair Christopher Dodd (D-Conn.) said that he is 'more
attracted to the council idea' than having a single regulator play that
role.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/05/08/AR2009050801272_pf.html'>Read
more.
Lehman, PBGC Strike $128
Million Deal over Pension Plan
Lehman Brothers Holdings Inc. asked a judge on
Thursday to approve a deal settling a suit filed by the Pension Benefit
Guaranty Corp. that sought to hold Lehman units liable for the unfunded
benefits of the bankrupt investment giant’s pension plan,
size='3'>Bankruptcy Law360 reported on Friday.
The $127.6 million settlement would put an end to a suit the PBGC filed
in the U.S. District Court for the Southern District of New York to end
Lehman's pension plan. The PBGC filed the suit in anticipation of a Dec.
22 bankruptcy hearing on the sale of Lehman's subsidiaries, and sought
to make the units pay the plan's unfunded benefits by ending the plan
prior to the sale. Lehman stressed that the bankrupt bank could have
potentially owed the PBGC $212.7 million if the litigation had
continued.
href='http://bankruptcy.law360.com/articles/100594'>Read
more. (Subscription required.)
Ethanol Producer Files for
Chapter 11
White Energy Inc. has joined the long line of ethanol
producers to file for chapter 11 protection, blaming skyrocketing
commodity prices and investor speculation for the move,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported on Friday.
The company was joined by four subsidiaries, according to its chapter 11
filing entered on Thursday. The company claimed to be among the 10
largest ethanol producers in the United States, which it sold to oil
refineries to blend into gasoline, and the largest producer of gluten,
which it sold to food companies, bakers and pet food suppliers,
according to court filings. White Energy listed total assets and
liabilities each in the $100 million to $500 million range in its
bankruptcy petition, but the company did not provide precise figures.
The case is
face='Times New Roman' size='3'>In re White Energy Inc.
size='3'>, case number 09-11601, in the U.S. Bankruptcy Court for the
District of Delaware.
href='http://bankruptcy.law360.com/print_article/100663'>Read
more. (Subscription required.)
Flying J Gets $20 Million
DIP Facility for Pipeline
Bankrupt oil company Flying J Inc. has won court
approval for $20 million in debtor-in-possession financing provided by a
group of investors, and for a $1.5 million increase to a $10 million DIP
facility provided by Merrill Lynch Commodities Inc.,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported on Friday.
Flying J has said that it needs the financing in order to continue
operating the Longhorn Pipeline, a 700-mile oil pipeline leading from
the Gulf Coast to near El Paso, Texas, which it plans to sell. Under the
new agreement, Flying J unit Longhorn Partners Pipeline LP will receive
a revolving credit facility allowing it to borrow up to $20 million at
any one time from investors in Longhorn Pipeline Investors LLC, which
sold the Longhorn Pipeline to Flying J in 2006. Longhorn Pipeline
Investors was a lender to Flying J before it went bankrupt, and has
asserted a claim of at least $215 million against it. The DIP facility
carries an interest rate of 11 percent per annum, payable when it
expires Aug. 1.
href='http://bankruptcy.law360.com/print_article/100563'>Read
more. (Subscription required.)
Administration Plans to
Strengthen Antitrust Rules
President Obama’s top antitrust official this
week plans to restore an aggressive enforcement policy against
corporations that use their market dominance to elbow out competitors or
to keep them from gaining market share, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. The new enforcement policy would reverse the
Bush administration’s approach, which strongly favored defendants
against antitrust claims. The head of the Justice Department’s
antitrust division, Christine A. Varney, is set to announce the policy
reversal in the hopes of encouraging smaller companies in an array of
industries to bring their complaints to the Justice Department about
potentially improper business practices by their larger rivals.
href='http://www.nytimes.com/2009/05/11/business/11antitrust.html?_r=1&ref=business&pagewanted=print'>Read
more.
AIG Sees Long Road Back
from the Brink
The turnaround of American International Group Inc.was
once hoped to be a quick process, but a new internal memo shows that the
insurer and its government owners expect a multiyear roadmap to
restructure AIG, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The turnaround plan, titled “Project
Destiny,” involved a 45-day review of AIG's far-flung businesses
that is supposed to lead to the multiyear plan. AIG initially set out to
sell off its big-ticket assets quickly last fall to pay back the federal
loan, but the plan foundered. Now, AIG is working on a new, long-term
plan, after a March 2 revision of the bailout eased the financial
pressure on the company. AIG's main insurance businesses remain under
pressure, as evidenced by the first-quarter results released by the
company last week. Project Destiny may be discussed at a congressional
hearing about AIG scheduled for Wednesday.
href='http://online.wsj.com/article/SB124200391881705297.html#mod=testMod'>Read
more. (Subscription required.)
Capital One, Other Banks
Plan Stock Sales to Repay TARP
A handful of financial companies announced plans today
to collectively sell more than $7 billion in stock as they look to raise
cash during a period of investor interest, with some of the companies
using the proceeds to pay back funds from the government's Troubled
Asset Relief Program (TARP), the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. U.S. Bancorp, Capital One Financial Corp.,
KeyCorp, Principal Financial Group Inc. and BB&T Corp. announced
offerings today while U.S. Bancorp said it also may offer medium-term
notes along with stock. Many banks have said they will pay back TARP
funding as quickly as possible in order to avoid strict regulations on
their activity, particularly related to executive pay, imposed by the
government.
href='http://online.wsj.com/article/SB124203772372706249.html#'>Read
more. (Subscription required.)
Sallie Mae Reverses
Position on Loan Subsidies
Reversing its long-held position on eliminating
government subsidies to student lenders, Sallie Mae now supports
President Obama's efforts to kill the subsidies, the
face='Times New Roman'>
size='3'>Washington Post reported today. The
company has offered a proposal that calls for the government to hold on
to the loans and pay private companies for originating and servicing
them.Sallie's plan is still slightly different from the one advanced by
the administration, which entails the government originating loans
itself. However, the company's turnaround, which surprised many in the
industry, could make it more likely that the administration will succeed
in transforming the way that millions of students pay to attend
college.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/05/10/AR2009051001768_pf.html'>Read
more.
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