March 5, 2010
CBO: Proposed Bank Fees Would Be Passed to Customers
The Congressional Budget Office has concluded that the Obama administration's proposed fee on the nation's biggest financial institutions would be passed through to consumers in one form or another, CongressDaily reported today. The nonpartisan analysts found that the 0.15 percent tax on the liabilities of banks, thrifts, securities dealers and others with more than $50 billion in assets 'would ultimately be borne to varying degrees by an institution's customers, employees, and investors,' CBO Director Elmendorf wrote to Senate Finance ranking member Chuck Grassley (R-Iowa). The White House estimates the fee would raise $90 billion to help pay down the deficit and soothe populist anger over what they deem as Wall Street's excesses. House Democrats are tinkering with the proposal and may use an altered form to offset job-creation initiatives. However, a number of key lawmakers on both sides of the aisle, including House Ways and Means Select Revenue Measures Chairman Richard Neal (D-Mass.) want to exempt firms that did not take Troubled Asset Relief Program funds. The budget analysts estimated that most firms targeted by the fee would not be those that generated losses from TARP, although American International Group, GMAC Financial Services and CIT Group are among those that cost the government and would pay the fee. Of the $99 billion in TARP losses, CBO found, auto companies - who are exempt from the bank fee - are responsible for $47 billion.
Citadel Receives Approval to Tap Cash
Bankrupt radio broadcaster Citadel Broadcasting Corp. on March 3 received final permission Bankruptcy Judge Burton Lifland to tap cash that its pre-bankruptcy lenders have marked as collateral, the Deal Pipeline reported yesterday. Las Vegas-based Citadel sought chapter 11 protection in December. The Forstmann Little & Co.-backed radio group filed a reorganization plan in February that would give 90 percent of its equity to lenders. Judge Lifland will consider whether Citadel has made adequate disclosures on March 9.
Trustee Sues Former Thornburg Mortgage Executives for Theft
Four top executives of Thornburg Mortgage improperly paid themselves handsome bonuses just before the mortgage lender filed for bankruptcy last year, and stole money and ideas from Thornburg to secretly launch a new firm, according to the bankruptcy trustee in charge of liquidating the lender, Reuters reported yesterday. In a complaint filed on Tuesday, trustee Joel Sher said that the four executives and their outside lawyer and law firm conspired to launch a new company, called SAF Financial, using a strategy created by Thornburg to try to save itself. The trustee alleged that former CEO Larry Goldstone, former CFO Clarence Simmons, and former Vice Presidents Deborah Burns and Amy Pell began planning for the new company in the months and days ahead of Thornburg's bankruptcy. The plan was to purchase a small thrift that would give the company access to deposits and Federal Home Loan Bank funds for issuing mortgages, according to the lawsuit. The trustee is seeking to recover at least $12 million in misappropriated funds and millions from other claims, including thousands of dollars worth of bonuses that he contends the executives secretly paid themselves ahead of the bankruptcy. Read more.
AIG Units Settle Mortgage Discrimination Case
The Department of Justice said yesterday that two AIG units settled federal charges that they discriminated against African American home buyers on fees for mortgages and will pay $7.1 million for restitution and education efforts, Reuters reported yesterday. The units, AIG Federal Savings Bank and Wilmington Finance Inc, will provide $6.1 million to about 2,500 borrowers in at least 19 major metropolitan cities who were affected by the alleged discrimination, according to the department. The AIG subsidiaries will also provide at least $1 million to organizations that provide credit counseling, financial literacy and other educational programs that target African American borrowers, according to the documents. Read more.
Media
Judge Approves Newspaper Publisher's Reorganization Plan
Bankruptcy Judge Kevin Carey yesterday approved Affiliated Media Inc.'s bankruptcy reorganization plan, clearing the way for the publisher of the Denver Post and San Jose Mercury News to emerge from chapter 11 protection this month. Affiliated Media is the holding company for MediaNews Group, which it said is the second-largest U.S. newspaper publisher by circulation, owning 54 daily newspapers and more than 100 non-daily newspapers. The company has said that all but one of its newspapers were profitable, but a restructuring was needed because of the slump in advertising, which generates about 80 percent of its revenue. Affiliated Media said that the Denver-based company expects to emerge from bankruptcy around March 19. Read more.
Tribune Bondholders Sue Lenders over Bankruptcy
Holders of bankrupt Tribune Co. bonds have filed a lawsuit to disallow claims by banks that funded the company's $8.2 billion leveraged buyout, Reuters reported yesterday. The lawsuit, filed Wilmington Trust Co. on behalf of holders of $1 billion of bonds, blames the company's bankruptcy on the banks that financed the buyout that put real estate developer Sam Zell in control of the Tribune. 'The lead banks structured the LBO knowing that it would add a tremendous amount of debt to Tribune and render it insolvent,' said the complaint. Bondholders want the leveraged-buyout debt, which currently has priority over bond debt, to be disallowed or subordinated so that bondholders are paid first. Read more.
Commentary: Banks Failing to Fess Up to Commercial Property Losses
Real Capital Analytics found that as of last December, $203 billion worth of U.S. commercial mortgage assets were 'troubled' and these assets pose a serious threat to the financial system, according to a commentary in Forbes Magazine today. Over the next four years about $1.4 trillion in commercial real estate loans will come due, with nearly half the properties expected to be 'underwater,' according to 'Commercial Real Estate Losses and the Risk to Financial Stability,' a report released last month by the Congressional Oversight Panel for the Treasury Asset Relief Program. Given the weak economy and depressed real estate market, it is more critical than ever that banks report their financial status in a clear and transparent manner, according to the commentary. Despite the ongoing risks, the actual data that banks report in their financial statements do not necessarily err on the side of conservatism. What's more, according to the commentary, management enjoys a high degree of latitude regarding estimates and assumptions that are integral to assessing creditworthiness and the adequacy of loss provisions. Read more.
Washington Mutual Sees 'Momentum' in Talks with J.P. Morgan
Washington Mutual Inc. yesterday reported 'momentum' in discussions aimed at settling disputes arising out of the largest banking collapse in U.S. history, that of Washington Mutual Bank (WaMu), Dow Jones Daily Bankruptcy Review reported today. Washington Mutual, J.P. Morgan Chase & Co. and the Federal Deposit Insurance Corp. have been wrestling over some $4 billion in cash that was in Washington Mutual's bank accounts at WaMu when the thrift was seized and sold to J.P. Morgan in September 2008. The thrift's seizure has triggered a flurry of lawsuits, some aimed at J.P. Morgan, some at the FDIC and some at Washington Mutual Inc., arousing fear among investors that court fights could tie up the money for years. Besides the bank account cash, there are billions of dollars worth of tax refunds on the way. J.P. Morgan, Washington Mutual and the FDIC, as receiver for WaMu's creditors, have all laid claim to the money.
House Adopts $15 Billion Plan to Spur Job Growth
The House of Representatives yesterday approved (217-201) a $15 billion measure intended to spur job creation by granting tax breaks to businesses that hire workers, the New York Times reported today. Though the measure attracted bipartisan support when approved by the Senate last week, House Republicans were dismissive, saying that it was cobbled together by Democrats for political purposes and would do little to spur new employment. The centerpiece of the legislation is a plan to exempt businesses that hire people who have been out of work for at least 60 days from paying the 6.2 percent payroll tax on those employees through year-end. It also grants a $1,000 tax credit if the workers are kept on for a full year. Read more.
John P. Fitzgerald has been appointed Acting U.S. Trustee for Massachusetts, New Hampshire, Maine and Rhode Island (Region 1), the Executive Office for United States Trustees announced yesterday. Fitzgerald replaces Phoebe Morse, who resigned after serving as U.S. Trustee for Region 1 since April 2004. Fitzgerald joined the U.S. Trustee Program (USTP) in 1990, serving first as a trial attorney and then as the Assistant U.S. Trustee in the Portland, Maine, office. In 1992, he was appointed as the Assistant U.S. Trustee in the Boston office. Prior to joining the USTP, Fitzgerald was a trial attorney in the Department of Justice?s Tax Division, Criminal Section, for 10 years. Fitzgerald currently serves as the chair of the USTP?s Creditor Abuse Working Group, which assists USTP field offices in the investigation and litigation of cases involving abusive conduct by creditors.
International
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