October 72009

 

face='Times New

























Roman'

size='3'>Debt-Market Paralysis Deepens Credit
Drought

The continued disarray in debt-securitization markets,

which in recent years were the source of roughly 60 percent of all
credit in the United States, is making loans scarce and threatening to
slow the economic recovery, the

face='Times










New

Roman' size='3'>New York Times reported today.

While many of these markets are operating only because the government is

propping them up, the Federal Reserve has put these markets on notice
that it plans to withdraw its support for them. Policy makers hope
private investors will return to the markets, which imploded during the
financial crisis. Many investors have lost trust in securitization after

losing huge sums on packages of subprime mortgages that had high default

rates. The government has since spent more than $1 trillion trying to
restore the markets, with mixed success. Until more of the
securitization market revives, or some new form of financing takes its
place, a wide range of loans needed to secure a lasting economic
recovery will remain elusive, experts said. 

href='http://www.nytimes.com/2009/10/07/business/economy/07shadow.html?ref=business&pagewanted=print'>Read

more.

Fed Scrutinizes Effects of
Commercial Real Estate Downturn

Banks in the U.S. 'are slow' to take losses on their
commercial real estate loans being battered by slumping property values
and rental payments, according to a Federal Reserve presentation to
banking regulators last month, the

face='Times










New

Roman' size='3'>Wall Street Journal reported
today. 'Banks will be slow to recognize the severity of the loss -- just

as they were in residential,' according to the Fed presentation. While
the Sept. 29 presentation by K.C. Conway, an Atlanta Fed real estate
expert, doesn't represent the central bank's formal opinion, worries
about the banking industry's commercial real estate exposure have been
building inside the Fed for months. In another sign that many U.S.
financial institutions are inadequately protected against potential
losses on commercial real estate loans, banks with heavy exposure to
such loans set aside just 38 cents in reserves during the second quarter

for every $1 in bad loans, according to an analysis of regulatory
filings by the Wall Street Journal. That
is a sharp decline from $1.58 in reserves for every $1 in bad loans from

the beginning of 2007. 
href='http://online.wsj.com/article/SB125487629495569591.html'>Read
more. (Subscription required.)

SEC Says Frank’s
Derivatives Plan May Leave “Regulatory Gaps”

A Securities and Exchange Commission official is set
to testify that Rep. Barney Frank’s (D-Mass.) proposed overhaul of

derivatives regulation may leave gaps in oversight and weaken the
SEC’s power to police fraud and manipulation, Bloomberg News
reported today. The measure to regulate the $592 trillion
over-the-counter derivatives market has drawn praise from business
groups including the National Association of Manufacturers and the
Securities Industry and Financial Markets Association. Business reaction

to Frank’s proposal suggests it lacks restrictions sought by
critics who blame derivatives for speeding the downfall of American
International Group Inc. and for exacerbating the credit crisis over the

last 18 months. Frank’s proposal would ease trading and clearing
requirements for derivatives dealers such as Morgan Stanley and Goldman
Sachs Group Inc., compared with the administration’s proposal. The

Obama administration’s plan would force all standardized
derivatives transactions to be executed on an exchange or processed
through a regulated clearinghouse, both of which impose collateral and
margin requirements on trades. Frank’s bill wouldn’t move as

many trades to exchanges. 

href='http://news.yahoo.com/s/bloomberg/20091007/pl_bloomberg/at69rjhbgd88_1/print'>Read

more.

href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hrfcder_100709.shtml'>Click

here to read the prepared witness testimony for today’s House
Financial Services hearing titled “Reform of the Over-the-Counter
Derivative Market: Limiting Risk and Ensuring
Fairness.”

AIG CDS, Lehman in Dispute
over Swap Contract

The derivatives trading subsidiary of American
International Group Inc. told a bankruptcy judge yesterday that Lehman
Brothers Special Financing Inc. did not meet its obligation to make
premium payments to the unit,

face='Times










New

Roman' size='3'>Bankruptcy Law360 reported
yesterday. AIG CDS Inc.'s objection, filed in the U.S. Bankruptcy Court
for the Southern District of New York, comes in response to Lehman's
Aug. 7 motion seeking an order compelling the insurer to pay more than
$9 million. AIG CDS argued in court papers that prior to filing for
bankruptcy, the fallen financial giant had failed to make a $900,000
premium payment on the agreement. Since Lehman filed for bankruptcy, AIG

CDS told the court that the debtor is more than $3 million behind on its

payments to the New York-based insurer, now largely owned by U.S.
taxpayers. On July 23, Tuesday's court filing says, Lehman sent AIG CDS
a bill for more than $9.1 million, which represented money owed Lehman
as a result of the credit events minus money Lehman owed AIG
CDS. 
href='http://bankruptcy.law360.com/print_article/126577'>Read more.
(Subscription required.)

Fannie and Freddie to Aid
Mortgage Banks

Fannie Mae and Freddie Mac are preparing to introduce
a program aimed at helping independent mortgage banks acquire the
short-term credit they need to make home loans, the
face='Times New Roman'>Wall
Street Journal reported today. The two
government-backed mortgage companies, the main providers of funding for
U.S. home loans, plan to provide advance commitments to purchase home
mortgages that meet certain standards. The goal is to reduce risks faced

by independent mortgage banks so they can obtain short-term credit.
Fannie and Freddie are looking to possibly build on a previously
undisclosed pilot program that Freddie has with Provident Funding
Associates LP, a large national mortgage lender based in Burlingame,
Calif., and with NattyMac, a so-called warehouse lender based in St.
Petersburg, Fla., that provides short-term funding to mortgage
companies. Under that pilot program, Freddie makes commitments to
purchase loans made by Provident Funding that are financed by NattyMac.
NattyMac is responsible for ensuring that the loans meet certain quality

standards set by Freddie. The commitments from Freddie reduce the risk
that NattyMac or Provident will be stuck with loans that are rejected by

Freddie or Fannie and can be sold to other investors only at a huge
discount. 

href='http://online.wsj.com/article/SB125486796534968995.html?mod=WSJ_hps_LEFTWhatsNews'>Read

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Plastech Trustee Launches
Dozens of Payment Suits

Carroll Services LLC, the liquidating trustee for
bankrupt auto supplier Plastech Engineered Products Inc., has filed
roughly 90 adversary suits against various creditors, seeking to recover

alleged preferential or fraudulent transfers, Bankruptcy
Law360 reported yesterday. The lawsuits,
seeking anywhere from a few thousand to more than $100,000 each, come
more than a year after the company successfully sold three of its units
to stalking-horse bidders at auction in the case. Alternatively, the
complaints alleged that Plastech may have become insolvent as a result
of the transfers. 
href='http://bankruptcy.law360.com/print_article/126833'>Read more.
(Subscription required.)

Judge Approves Involuntary
Chapter 7 for Women’s Apparel Company

A bankruptcy judge granted a petition yesterday from
several Asian manufacturing firms seeking a chapter 7 liquidation filing

of women's apparel brand Ellen Tracy,

face='Times










New

Roman' size='3'>Crain’s New York Business
size='3'>reported today. In August, four firms, based in China and Hong
Kong, filed a petition against Ellen Tracy, claiming they were owed more

than $3.8 million for goods sold. The brand was bought in April 2008 by
Fashionology Group and Brand Matter from previous owner Liz Claiborne
Inc. However, earlier this summer, the operational division of Ellen
Tracy was sold to RVC Enterprises from Fashionology, which had
reportedly wound down its manufacturing business. The attorney
representing the Asian petitioners, Kenneth Rosen of
Lowenstein Sandler, noted that his clients want the sale of the Ellen
Tracy license to RVC from Fashionology investigated. 

href='http://www.crainsnewyork.com/article/20091006/FREE/910069978/0/information&template=printart'>Read

more.

JPMorgan Escapes WaMu ERISA
Action

U.S. District Judge Marsha Pechman dismissed JPMorgan
Chase & Co. as a defendant in the consolidated putative class action

brought by participants of Washington Mutual Inc.'s savings plan,

size='3'>Bankruptcy Law360 reported yesterday.

Judge Pechman ruled that JPMorgan’s acquisition of the failed
financial giant's banking unit did not include the transfer of fiduciary

liability. JPMorgan purchased WaMu's banking unit from the Federal
Deposit Insurance Corp., which placed the savings and loan association
into receivership on Sept. 25, 2008. Allowing the plaintiffs to proceed
against JPMorgan would risk expanding the FDIC's jurisdiction
“well beyond its statutory reach,” Judge Pechman
said. 
href='http://bankruptcy.law360.com/print_article/126696'>Read
more. (Subscription required.)

Debit Is Replacing Credit
for Many Consumers

After years of relying on credit cards, consumers are
more often paying with their debit cards instead, according to a

size='3'>Washington Post report today. The
Federal Reserve said that revolving credit, primarily credit cards,
dropped by $6.1 billion in July, or 8.1 percent on an annualized basis.
Debit card usage, meanwhile, had been steadily growing over the years
but has surged in this recession. Visa announced this spring that
spending on Visa debit cards in the United States surpassed credit for
the first time in the company's history. In 2008, debit payment volume
was $206 billion, compared with credit volume of $203 billion.
MasterCard reported that for the first six months of this year, the
volume of purchases on its debit cards increased 4.1 percent, to $160
billion, in the United States. Spending on credit and charge cards sank
14.8 percent, to $233 billion. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/10/06/AR2009100603841_pf.html'>Read

more.

Support Builds for Tax
Credit to Help Hiring

The idea of a tax credit for companies that create new

jobs, something the federal government has not tried since the 1970s, is

gaining support among economists and government officials grappling with

the highest unemployment in a generation, the New York
Times reported today. The proposal has some
bipartisan appeal among politicians eager both to help their unemployed
constituents and to encourage small-business development. Legislators on

Capitol Hill and President Obama’s economic team have been quietly

researching the policy for several weeks. One version of the approach,
to be unveiled next week by the Economic Policy Institute, a
labor-oriented research organization, would give employers a two-year
tax credit if they increased the size of their work force or added
significant hours of work (for example, making a part-time worker full
time). Employers would receive a credit worth twice the first-year
payroll tax for each new hire, amounting to several thousand dollars,
depending on the new worker’s salary. 

href='http://www.nytimes.com/2009/10/07/business/07tax.html?_r=1&ref=business&pagewanted=print'>Read

more.

Bondholders Raise Offer
for Trump Casinos to $225 Million

Bondholders battling Donald Trump for control of Trump

Entertainment Resorts' three Atlantic City casinos have raised their
offer to $225 million - well in excess of what the real estate mogul and

reality TV star has offered to regain the gambling company he once ran,
the Associated Press reported today. Kris Hansen, an attorney for the
bondholders, said Wednesday morning they have added another $50 million
to their offer, which had been $175 million. It could not immediately be

determined whether Trump plans to increase his $100 million offer, which

is being made with his daughter Ivanka and Dallas-based Beal Bank.
Hansen said that the increased offer from the bondholders addresses
concerns that some parties had about the bondholders' plan to finance
part of the proposed purchase by selling the struggling Trump Marina
Hotel Casino.

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/10/07/AR2009100700681_pf.html'>Read

more.

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/10/07/AR2009100700681_pf.html'>

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