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October 6, 2008
Countrywide to Set Aside $8.4 Billion
in Loan Aid
As part of a settlement with officials in 11 states, Countrywide
Financial has agreed to the largest program ever to modify home loans,
the New York Times reported today. Countrywide, the nation's
largest lender and loan servicer, recently acquired by Bank of America,
had been sued by the states. To settle the suits, it will provide $8.4
billion in direct loan relief, affecting an estimated 400,000 borrowers
nationwide, while waiving certain fees and setting aside additional
funds to help people in foreclosure and relocating. Along with the
direct relief, Countrywide will waive late fees of $79 million and
prepayment penalties of $56 million and suspend foreclosures on
delinquent borrowers with the riskiest loans.
href='http://www.nytimes.com/2008/10/06/business/06countrywide.html?ref=business&pagewanted=print'>Read
more.
Analysis: Private Talks of Raising
Capital Belied Lehman's Public Optimism of Survival
In the weeks before it collapsed, Lehman Brothers Holdings Inc. went to
great lengths to conceal how fast it was headed toward the financial
collapse, according to the Wall Street Journal today. The
ailing securities firm quietly tapped the European Central Bank and the
Federal Reserve as financial lifelines. On Sept. 10, one day after
Lehman executives calculated the firm needed at least $3 billion in
fresh capital, the firm assured investors on a conference call it needed
no new capital at all. Lehman said that its massive real-estate
portfolio was valued properly, but Wall Street executives who have seen
it say it was overvalued by more than $10 billion. On Sept. 11, JPMorgan
Chase & Co. effectively ended Lehman's campaign to appear strong
when it demanded 5 billion in additional collateral from Lehman. That $5
billion collateral call, coupled with a huge outflow of money from
Lehman's hedge-fund clients, so weakened the 158-year-old Wall Street
firm that it sought chapter 11 protection four days later.
href='http://online.wsj.com/article/SB122324937648006103.html'>Read
more. (Subscription required.)
The House Oversight and Government Reform Committee will hold a
hearing today examining the financial and regulatory mistakes that led
to the bankruptcy filing by Lehman Brothers. Witnesses will include
Lehman Brothers CEO Richard Fuld.
href='http://oversight.house.gov/story.asp?ID=2176'>Click
here to read more about the hearing.
Court Clears Washington Mutual's
First-day Motions, Questions Loom over $5 Billion Deposit
As Washington Mutual Inc.'s bankruptcy case got underway on Friday, a
federal judge approved a couple of first-day motions, but the debtors'
concerns over the $5 billion it deposited persist, Bankruptcy
Law360 reported on Friday. Bankruptcy Judge Mary F.
Walrath signed off on the joint administration of the
Washington Mutual and WMI Investment Corp. bankruptcies and extended the
filing deadline for the list of creditors to Oct. 8th. The hearing was
dominated by Washington Mutual's concerns over $5 billion it deposited
in accounts now held by JPMorgan Chase & Co. Washington Mutual
disclosed the embattled status of the deposits in a regulatory filing
Tuesday that intimated that the value of the debtors' assets may turn
out to be well below the approximately $33 billion cited in the chapter
11 petition. Washington Mutual noted in the regulatory filing that it
“is in the process of confirming the status of those
deposits” but Friday's hearing heightened queries about the
debtors' access to those assets and the availability of the money for
their creditors.
href='http://bankruptcy.law360.com/print_article/71506'>Read more.
(Subscription required.)
In related news, a legal showdown between Citigroup and Wells Fargo over
the acquisition of Wachovia Corp. grew into a widening battle over the
weekend involving two courts and a cast of officials that included
Federal Reserve Chairman Ben S. Bernanke, the New York
Times reported today. By late last night no clear victor had
emerged, after a year's worth of legal battles was compressed into a
frenetic 48 hours. Citigroup's agreement to buy Wachovia for $2.2
billion was in question after Judge James M. McGuire of the Court of
Appeals overturned a Saturday ruling made by a New York lower court
judge from his Connecticut home that had appeared to temporarily thwart
the deal. Uncertainty also loomed over Wells Fargo's $15 billion offer
for Wachovia after Justice John G. Koeltl of the U.S. District
Court on Sunday postponed until Tuesday a hearing to determine whether
the two sides may pursue a deal.
href='http://www.nytimes.com/2008/10/06/business/06bank.html?ref=business&pagewanted=print'>Read
more.
California Looks to Weather Credit
Crunch
California Gov. Arnold Schwarzenegger (R) sent U.S. Treasury
Secretary Henry Paulson a letter Thursday warning that California might
have to seek $7 billion in emergency federal loans until liquidity is
restored in credit markets, the Wall Street Journal reported on
Saturday. With credit frozen, California had enough cash reserves to
last until Oct. 28, according to the Office of California State
Treasurer Bill Lockyer. As a result, the state was prepared to seek
initial loans of between $1.5 billion and $2 billion to cover expenses
including payrolls for thousands of teachers, police, firefighters and
other public employees. Lockyer's office said that $7 billion in federal
loans might be needed before next spring, when new state tax revenue
will be flowing.
href='http://online.wsj.com/article/SB122305751973202869.html#printMode'>Read
more. (Subscription required.)
Paulson Adviser to Oversee Financial
Rescue
The Treasury Department plans to tap Neel Kashkari, an assistant
secretary of international affairs and a former Goldman Sachs banker, to
oversee the government's $700 billion financial rescue program, the
Washington Post reported today. Kashkari has been a close
adviser to Treasury Secretary Henry M. Paulson Jr. on the credit crisis
and helped draft the legislation for the massive rescue plan. He is
expected to run the program on an interim basis until the Treasury finds
a permanent head. Kashkari's replacement would stay on after the next
administration takes office in January.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/10/05/AR2008100502684_pf.html'>Read
more.
Commentary: Automaker Loans Should
Include Strict Oversight
The Department of Energy, which is in charge of writing detailed
criteria for U.S. automakers to tap $25 billion in subsidized loans,
should include a provision for strict oversight of the program to ensure
that the money is directed to fuel efficiency purposes, according to a
New York Times commentary today. The loans are supposed to be
used to retool old car and parts plants to make vehicles that achieve at
least 25 percent better gas mileage than similar models in their class -
hardly a difficult target, according to experts from the Union of
Concerned Scientists. Read the
href='http://www.nytimes.com/2008/10/06/opinion/06mon2.html?ref=opinion&pagewanted=print'>full
commentary.
Mall Vacancies Grow as Retailers Pack
Up Shop
Vacancy rates at U.S. malls and shopping centers continued their steep
rise in the third quarter as slumping sales forced retailers to close
stores, the Wall Street Journal reported today. Malls are
seeing their highest vacancy rate since 2001, according to data released
by real estate research firm Reis Inc. For shopping centers, the rate is
the highest since 1994. The vacancy rate at malls in the top 76 U.S.
markets rose to 6.6 percent in the third quarter, up from 6.3 percent in
the previous quarter, to its highest level since late 2001, according to
Reis.
href='http://online.wsj.com/article/SB122325123663206279.html'>Read
more. (Subscription required.)
Study: Companies Unlikely to Use
Arbitration
Three law professors in a recent study suggest that companies are far
less likely to use arbitration clauses in contracts with each other than
they are in contracts with consumers, the New York Times
reported today. “I believe they're really using arbitration as a
way of avoiding class action litigation,” said Theodore Eisenberg,
a law professor at Cornell. Because it is not worth it to a single upset
consumer to sue a big company, he said, “the only thing those
companies fear is your having a plaintiffs' lawyer aggregate you and
people like you into a class action.” The findings by Eisenberg,
along with co-authors Geoffrey P. Miller of New York University School
of Law and Emily Sherwin of Cornell Law School, included contracts by 21
different telecommunications and financial services companies. They
found that companies included mandatory arbitration clauses in 75
percent of consumer agreements but in just 24 percent of contracts over
all. Every consumer contract with an arbitration clause also waived
possible group, or class, arbitration.
href='http://www.nytimes.com/2008/10/06/business/06arbitrate.html?ref=business&pagewanted=print'>Read
more.
Fed to Pay Interest on Banks'
Reserves
The Federal Reserve announced today that it will begin paying interest
on depository institutions' required and excess reserve balances in a
move the central bank said would give it 'greater scope' to address
ailing credit markets, the ireported today. The move, the Fed said,
should also help it maintain the federal-funds rate close to the target
established by the Federal Reserve's policy committee. Additionally, the
Fed announced that it is boosting the size of both 28-day and 84-day
Term Auction Facility auctions by $150 billion each, starting with
today's 84-day auction.
href='http://online.wsj.com/article/SB122329574769907451.html'>Read
more. (Subscription required.)
International
Financial Crises Spread in
Europe
European nations scrambled today to prevent a growing credit crisis from
bringing down major banks and alarming savers as Sweden followed
Germany, Austria and Denmark in offering new protections for bank
deposits, the New York Times reported. As troubles in financial
markets spread around the world, accelerating economic downturns in
major economies on three continents, Sweden became the latest European
country to offer new protection for bank deposits, after the German
government offered blanket guarantees Sunday to all private savings
accounts. Austria and Denmark followed suit later Sunday after the
German move, and expectations were high that Alistair Darling, the
British chancellor of the Exchequer, would be forced to announce some
new measures by the end of the day to calm the turmoil in the London
market.
href='http://www.nytimes.com/2008/10/07/business/07euro.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
In related news, European leaders did call for a global economic
summit by year's end aimed at revamping the international financial
system, the Washington Post reported today. Seeking to reassure
nervous Europeans, however, the four leaders described their summit as a
demonstration of resolve to prevent further bank crashes, make sure
depositors do not lose their savings and get money flowing through the
choked financial system again for businesses and consumers.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/10/04/AR2008100402321.html'>Read
more.