href='mailto:Headlines@abiworld.org?subject=Subscribe me to the ABI
Headlines Direct'>
src='/AM/Images/headlines/headline.gif' />
April 12, 2010
U.S. Faults Regulators over Washington Mutual
Failure
A federal investigation has concluded that regulators failed for
years to properly supervise the giant savings and loan Washington
Mutual, even as the company wobbled under the weight of risky subprime
mortgages, the New York Times reported today. Based on research
conducted from March to November 2009, the report examines the conduct
of the bank's primary regulator, the Office of Thrift Supervision, an
independent arm of the Treasury that regulates savings associations, and
the FDIC, which insured the institution's deposits. The report found
that Washington Mutual had failed primarily 'because of management's
pursuit of a high-risk lending strategy that included liberal
underwriting standards and inadequate risk controls.' The strategy
accelerated in 2005 and came to a crashing end in 2007 with the drop in
the housing market. However, the report also leveled unexpectedly sharp
criticism at the FDIC, which by July 2008 concluded that the bank needed
$5 billion in capital to withstand future potential losses. The report
said that the FDIC, which had questioned the Office of Thrift
Supervision's assessments of the bank's soundness, could have stepped in
earlier and acted as the primary regulator, but decided 'it was easier
to use moral suasion to attempt to convince the OTS to change its
rating.' The report, prepared by the inspectors general for the Treasury
Department and the Federal Deposit Insurance Corporation, is expected to
be released on Friday.
href='http://www.nytimes.com/2010/04/12/business/12wamu.html?ref=business&pagewanted=print'>Read
more.
Stanford Financial Assets to Be
Auctioned
Bankrupt Stanford Financial Group and its affiliates and insiders
will auction off assets under the guidance of a court-appointed receiver
more than a year after the financial firm and its assets were placed in
the custody of the federal government on suspicion of fraud, the Deal
Pipeline reported on Friday. A public auction of the company's
assets will be held on April 28. R. Allen Stanford, who founded the firm
and ran it, is set to go to trial on Jan. 24 on 21 counts of conspiracy,
fraud, bribery and obstruction of justice. He and co-defendants are
accused of bilking investors in a $7 billion fraud involving
certificates of deposit issued by an Antiguan bank that was part of
Stanford Financial. Among the assets up for sale is Stanford's Florida
property, referred to as 20 Casuarina Concourse in Coral Gables, which
must start at $9.285 million. The debtor will enter the event with an
unnamed stalking-horse bidder. Read more. (Subscription required.)
Justice Stevens' Exit Sets Stage for
Nomination Battle
Supreme Court Justice John Paul Stevens announced his retirement on
Friday, giving President Obama his second high court appointment and
setting the stage for a contentious confirmation battle in the Senate
this summer, CongressDaily reported on Friday. The leader of the
liberal sbloc of four justices, just 11 days short of his 90th birthday,
recently signaled his intent to step down soon to assure that Obama
would name his replacement. The White House has a list of potential
justices left over from last year's nomination of Justice Sonia
Sotomayor. Among those considered last year and still high on the White
House list for this vacancy are Solicitor General Elena Kagan, federal
Appeals Court Judges Diane Wood of Chicago and Merrick Garland of the
District of Columbia and Homeland Security Secretary Napolitano. Justice
Stevens, who joined the court in 1975, said his retirement would take
effect the day after the court finishes its work for the summer, most
likely in late June. This, he said, would give the Senate time to
confirm a successor before another term begins in October.
Court Denies Review in Philadelphia
Newspapers Case
Secured lenders of Philadelphia Newspapers LLC were dealt a setback
on Friday in their attempt to take control of the city's leading daily
newspapers without putting up any more money, Reuters reported on
Friday. The lenders, including Citizens Bank, were denied a request to
have a U.S. Appeals Court rehear a decision barring them from using $318
million they are owed as their bid for the Philadelphia Inquirer
and Daily News. The decision clears the way for the company to
hold an auction with cash-only bids. Philadelphia Newspapers has argued
that bids must be in cash to determine the market price of the business.
Secured lenders could still bid in cash. Critics of the 'cash only'
bidding have said it could strengthen the hand of bankrupt companies
that want to have added leverage with secured creditors. The dissenting
judge in the original Appeals Court ruling warned it could raise the
cost of credit.
href='http://www.reuters.com/article/idUSN0911242720100409'>Read
more.
Second Mortgages Vex Borrowers
Banks are coming under increasing political pressure to write off or
at least write down second-lien and other junior mortgages as a way to
help borrowers keep their homes or extract themselves from heavy debt,
the Wall Street Journal reported today. However, banks often are
reluctant to give up on loans when they see a chance of recovering all
or part of their money. The $1 trillion of junior-lien mortgages
outstanding in the U.S. at the end of 2009 added up to about 10 percent
of total home-mortgage debt, according to Federal Reserve data. Among
borrowers whose first mortgages were packaged into so-called
private-label securities (those not backed by any government entity),
about half also have junior-lien loans, according to mortgage-bond
trader Amherst Securities. Those junior liens now represent one of the
trickiest obstacles to efforts to get distressed borrowers back on their
feet. Borrowers who negotiated lower payments on their first mortgages
often find they are overwhelmed by payments on second mortgages and
other debts. This issue will be the focus of a hearing tomorrow by the
House Financial Services Committee.
href='http://online.wsj.com/article/SB10001424052702304846504575177720824287204.html?mod=WSJ_hp_editorsPicks'>Read
more. (Subscription required.)
Lehman Claims Barclays Received Secret
Discount
Lehman Brothers Holdings Inc. told a U.S. bankruptcy judge on Friday
that Barclays Plc. should be forced to return certain assets that it
received in its 2008 acquisition of Lehman's core U.S. brokerage because
Barclays arranged a secret $5 billion discount, Reuters reported on
Friday. In opening arguments at a hearing in U.S. Bankruptcy Court in
Manhattan, an attorney for Lehman Brothers claimed that Lehman and
Barclays employees had hidden information about the discount from their
lawyers and the court, amid intense deal negotiations in the darkest
days of the financial crisis. Lehman filed the largest bankruptcy in
history on Sept. 15, 2008, selling its flagship U.S. brokerage business
to Barclays for about $1.85 billion less than a week later. However,
Lehman is now asking Judge James Peck to make changes to the
order that authorized the deal after months of investigation revealed
that the sale described to the court was not the sale actually executed.
href='http://www.reuters.com/article/idUSN0925627320100409'>Read
more.
The U.S. government's rescue of wobbly companies and financial
markets is starting to look far less expensive or long-lasting than once
feared, the Wall Street Journal reported today. As momentum grows
at companies that looked to be in trouble just a few months ago to repay
taxpayers for lifelines they got during the financial crisis, the
projected cost of the bailout is shrinking to just a fraction of
previous estimates. Treasury Department officials say the tab is likely
to reach $89 billion, which includes the Troubled Asset Relief Program,
capital injections into Fannie Mae and Freddie Mac, loan guarantees by
the Federal Housing Administration and Federal Reserve moves such as
buying mortgage-backed securities and propping up the commercial-paper
market. Treasury officials are increasingly optimistic that even
American International Group Inc. could be on its own within a year,
with officials discussing ways to extricate the government from its 80
percent stake in the insurer. AIG is on track to repay its loan to the
Fed through asset sales that will raise $51 billion. The discussions
come as the Treasury is planning to sell its $32 billion stake in
Citigroup Inc. and General Motors Corp. moves toward repaying its $6.7
billion government investment and embarking on an initial public
offering this summer. Both companies could be free of government strings
sometime this year.
href='http://online.wsj.com/article/SB10001424052702304846504575177950029886696.html'>Read
more. (Subscription required.)
AIG, Goldman Unwind Soured Trades
The derivatives unit of American International Group Inc. has unwound
most of its soured mortgage trades with Goldman Sachs Group Inc. still
left after the insurer was bailed out by the U.S. government in 2008,
the Wall Street Journal reported today. The move by AIG Financial
Products to terminate credit-default swaps insuring about $3 billion of
mortgage-asset pools arranged by Goldman caused AIG to realize a $1.5
billion to $2 billion loss last year. However, the insurer is no longer
exposed to declines in the value of these asset pools, called 'Abacus,'
which could have forced AIG to make payouts upon defaults or triggered a
costly collateral call. AIG Financial Products currently has roughly
14,400 outstanding derivative trades on interest rates, currencies,
bonds and other instruments, down from as many as 44,000 at the unit
before September 2008. The notional value of the remaining derivatives
is about $770 billion, down from more than $2 trillion.
title='Read more.'
href='http://online.wsj.com/article/SB10001424052702304846504575177953123007536.html?mod=WSJ_hps_LEFTWhatsNews'>Read
more.(Subscription required.)
Trustee Sues Former Private-Equity Owners
of Buffets Holdings
The court-appointed trustee charged with recovering cash for
creditors in Buffets Holdings Inc.'s bankruptcy case is suing the
restaurant operator's former private-equity owners, claiming the firms
'bilked Buffets out of hundreds of millions of dollars' before plunging
the company into bankruptcy, Dow Jones Daily Bankruptcy Review
reported today. Trustee JLL Consultants is suing Buffet's former owners
Caxton-Iseman Capital, now known as CI Capital Partners and Sentinel
Capital Partners, for hundreds of millions of dollars in the firms
received in dividends and fees following their purchase of dining chain
in a 2000 leveraged buyout. The trustee claims that the former owners
took some $350 million out of Buffets as either 'illegal dividends' or
'fraudulent conveyances.' The trustee's suit comes a little more than a
year after a reorganized Buffets emerged from bankruptcy under the
control of its lenders.
Cooper-Standard Seeks to Issue $450
Million Notes for Chapter 11 Exit
Cooper-Standard Holdings Inc. is seeking court approval to issue $450
million in notes to fund the auto-parts maker's exit from bankruptcy,
Dow Jones Daily Bankruptcy Review reported today. Cooper-Standard
intends to pay off its secured lenders and certain creditor groups in
cash, so 'obtaining exit financing is a condition' of a successful
emergence from bankruptcy, the company said in court papers.
Cooper-Standard is currently soliciting creditor support for its chapter
11 plan. A plan confirmation hearing is scheduled for May 12.
International
Click here to review
today's global insolvency news from the GLOBAL INSOLvency site.