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June 6, 2008
Real Estate Woes of Banks
Mount
Federal regulators warned yesterday that banking-industry turmoil would
continue as financial institutions come to terms with piles of bad loans
they made to finance the construction of homes and condominiums, the
Wall Street Journal reported today. Most of the damage to banks
from the housing crisis has come from homeowners defaulting on their
mortgages, and loans to home and condo builders appear increasingly
shaky amid a dismal spring sales season for new homes. Banks have begun
to dump them at what will likely be steep discounts, setting the stage
for billions of dollars in fresh losses. 'As long as the housing market
is on a downward path, as long as those prices continue to fall, I think
there's a risk that the losses could continue to mount on a variety of
loans,' Federal Reserve Vice Chairman Donald Kohn told the Senate
Banking Committee yesterday.
href='http://online.wsj.com/article_print/SB121270897437850363.html'>Read
more. (Registration required.)
In related news, Senate Banking Chairman Christopher Dodd (D-Conn.) said
yesterday that he was concerned over the decreasing balance of the
FDIC's deposit insurance fund, but expressed confidence that FDIC
Chairwoman Shelia Bair will be able manage any difficulties,
CongressDaily reported yesterday. Lawmakers specifically
pressed Bair on the state of her agency's $52.8 billion deposit
insurance fund, where growth has slowed because of losses. The FDIC
reported last week that its list of undercapitalized banks grew in the
first quarter from 76 to 90, representing $26.3 billion in assets. The
agency's insurance fund ratio was at 1.19 percent March 31, down from
1.22 percent at the end of 2007. Under the FDIC's governing statute, it
would draw up a recapitalization plan, which would include raising
insurance premiums, if it were to dip below 1.15 percent. Bair said she
did not want to predict where the ratio would be in mid-August, when the
next report on insurance fund would be issued, because of the current
uncertainty in the industry.
City Corp. Scrutinized by Regulators
National City Corp.'s banking unit, which has been buffeted by rising
bad loans, has recently entered into a 'memorandum of understanding'
with federal regulators, effectively putting the bank on probation, the
Wall Street Journal reported today. The confidential agreement
with the Office of the Comptroller of the Currency was entered into over
the past month or so. It illustrates the growing regulatory pressure
some financial institutions are under as they struggle to deal with
fallout from the credit-market turmoil. The terms of the agreement with
National City aren't known. However, regulators usually urge banks to
maintain adequate capital and improve lending standards.
href='http://online.wsj.com/article_print/SB121271764588650947.html'>Read
more. (Registration required.)
name='3'>Unemployment Rate Jumps to 5.5 Percent in May
The Labor Department reported that the nation's unemployment
rate jumped to 5.5 percent in May, the biggest monthly rise since 1986,
as employers cut 49,000 jobs, the Associated Press reported today. The
jump in the unemployment rate surprised economists who were forecasting
a tick-up to 5.1 percent. The Labor Department reported yesterday that
the four-week average for people receiving unemployment benefits edged
up to 3.086 million, the highest level since March 6, 2004. However, the
overall economy as measured by the gross domestic product has managed to
remain in positive territory, with the GDP growing at an annual rate of
0.9 percent in the first three months of the year.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/06/06/AR2008060601470_pf.html'>Read
more.
name='4'>Distributed Energy Systems Files for Chapter 11
/>
Distributed Energy Systems Corp. filed for bankruptcy on Wednesday,
listing assets of $16.8 million and debts of $65.5 million,
Bankruptcy Law360 reported yesterday. DESC, which came into
being in 2003 as a result of the merger of Northern Power and DESC
nondebtor subsidiary Proton Energy Systems Inc., is looking to to sell
off both Northern Power and Proton. Northern Power has identified New
Enterprise Associates Inc. as a stalking-horse bidder. The case is In re
Distributed Energy Systems Corp., case number 08-11101 in the U.S.
Bankruptcy Court for the District of Delaware.
href='http://bankruptcy.law360.com/secure/ViewArticle.aspx?Id=58446'>Read
more. (Registration required.)
Judge
Could Decide Today on Pacific Lumber's Exit Plan
Bankruptcy Judge Richard Schmidt could issue a decision
today on two competing plans to take Pacific Lumber Co. and its
subsidiary Scotia Pacific out of chapter 11 protection, the Wall
Street Journal reported today. One plan under consideration by the
bankruptcy court is backed by Mendocino Redwood Co., which is owned
largely by the Fisher family that founded Gap Inc., and hedge fund
Marathon Asset Management, a Pacific Lumber creditor. Under the plan,
the Scotia sawmill and the timberlands would be transferred to a new
company, 85 percent owned by Mendocino and 15 percent by Marathon.
Another new company owned by Marathon would take control of the town, a
power plant and some former mill sites. However, Scotia Pacific's
bondholders, who hold the timberlands as collateral, want to auction the
property, according to court transcripts. Scotia Pacific issued more
than $700 million in secured bonds on the timberland in 1998. The
bondholders have rejected a $530 million offer from Mendocino and
Marathon to pay off the bonds.
href='http://online.wsj.com/article_print/SB121272116835651189.html'>Read
more. (Registration required.)
Court
Denies Request for Conditions on Dura's Bankruptcy Exit
A U.S. bankruptcy court yesterday denied a bond trader's request to put
conditions on Dura Automotive Systems Inc's exit from bankruptcy
protection, Reuters reported. James Korth, who manages investment bank
J.W. Korth & Co, had asked the U.S. Bankruptcy Court for the
District of Delaware to allow Dura to exit bankruptcy by mid-June but
order the new common stock of the company held in escrow until a
decision had been made on his objections to Dura's reorganization plan.
The court approved Dura's reorganization plan last month.
href='http://www.reuters.com/article/rbssConsumerGoodsAndRetailNews/idUSN0542179620080606'>Read
more.
name='7'>Commentary: Big Airlines in a Rush to Go Small
/>
With fuel prices almost double the level of a year ago, many big
airlines have quickly shifted strategies from “bigger is
better” in terms of their fleet size to “less is
more,” according to a New York Times commentary today. Continental
was the latest carrier to announce cuts, saying yesterday that it would
ground 67 planes. In all, airlines in the United States have announced
plans since March to park more than 200 aircraft, from regional jets to
big Boeing 747s, representing more than 10 percent of the major
airlines' fleet. As they cut costs, they are also raising ticket prices
and imposing new surcharges and fees to help offset soaring fuel costs.
Air fares overall are up 16 percent this year for coach tickets bought
in advance, according to Harrell Associates, an industry consulting
firm.
href='http://www.nytimes.com/2008/06/06/business/06travel.html?ref=business&pagewanted=print'>Read
more.
Former
Boxing Champ Experiencing Financial Woes
Evander Holyfield appears to be in financial distress as his $10 million
estate in suburban Atlanta is under foreclosure, the mother of one of
his children is suing for unpaid child support and a Utah consulting
company has gone to court claiming the boxer failed to pay back more
than a half million dollars for landscaping, the Associated Press
reported today. A legal notice on Wednesday said that Holyfield's estate
will be auctioned off at the Fayette County (Ga.) courthouse on July 1.
Meanwhile, Holyfield's handlers allegedly told the mother of one of his
children that he will no longer be able to make his $3,000-a-month
support payment. Further compounding the financial woes of the only
four-time heavyweight champion, a federal lawsuit was filed about two
weeks ago in Utah seeking repayment of $550,000 in loans allegedly made
to Holyfield in late 2006 and early 2007 to pay for landscaping on his
235-acre estate.
href='http://www.nytimes.com/aponline/sports/AP-BOX-Holyfields-Finances.html?sq=bankruptcy&st=nyt&scp=3&pagewanted=print'>Read
more.
Scrutinize AIG on Accounting Practices
The Securities and Exchange Commission is investigating whether insurer
American International Group Inc. overstated the value of contracts
linked to subprime mortgages, the Wall Street Journal reported
today. Criminal prosecutors from the Justice Department in Washington,
D.C., and the department's U.S. attorney's office in Brooklyn, New
York, have told the SEC they want information the agency is gathering in
its AIG investigation. In 2006, AIG, the world's largest insurer, paid
$1.6 billion to settle an accounting case. Its stock has been battered
because of losses linked to the mortgage market. The earlier probe led
to the departure of its CEO.
href='http://online.wsj.com/article_print/SB121271786552550939.html'>Read
more. (Registration required.)
size='3'>International
name='10'>Pension Corp. Agrees to Buyout
of British Steen Group's Pension Plan
Pension Corp. a UK specialist pension manager, agreed a 451 million
pound ($879 million) buyout that will secure the benefits of the pension
plan of steel products group Delta, Reuters reported yesterday. In
exchange for taking on the liabilities of 10,200 members of Delta's
pension scheme who are already receiving their pensions, Pension Corp.
will receive assets amounting to 451 million pounds. Pension Corp. had
stayed out of the pension insurance market -- in which insurers agree to
take on the liabilities of companies in return for a premium -- until
recently, because an influx of competitors had pushed prices
down.
href='http://in.reuters.com/article/rbssIndustryMaterialsUtilitiesNews/idINL0519756920080605'>Read
more.