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NEWS AND ANALYSIS
ANALYSIS: FINANCIAL REFORM BATTLE CONTINUES OVER DODD-FRANK LAW
The fate of financial reform may be decided in the coming year as congressional leaders on both sides of the aisle attempt to modify the Dodd-Frank Act, the Washington Post reported today. In the two years since Congress passed the far-reaching regulatory overhaul, lawmakers have railed against the law for either not going far enough to reform Wall Street or being too burdensome to the industry. Republicans have sought to dismantle Dodd-Frank through a series of failed bills, placing Democrats on the defensive despite their own misgivings about the law. GOP leaders tucked language into the failed “fiscal cliff” bill that would have cut automatic funding to the Consumer Financial Protection Bureau and stripped regulators of the power to unwind "too-big-to-fail" institutions. Meanwhile, the Senate unanimously passed a bill on Dec. 28 that would direct the Government Accountability Office to examine the economic benefits large banks receive for being "too big to fail." The bill, sponsored by Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.), asks the agency to study whether institutions with more than $500 billion in assets enjoy favorable pricing on their debt because of perceptions that the government will always step in to prevent their collapse. It is unclear whether the House will take up the bill in the next session, but advocates of reform are encouraged by the bipartisan support in the Senate. Read more.
MORTGAGE-FEE PLAN FACES PUSHBACK
The federal regulator of Fannie Mae and Freddie Mac is running into opposition from lawmakers, state attorneys general and consumer advocates over a proposal to raise fees on loans in five states where foreclosures take the longest, the Wall Street Journal reported today. Officials in the states—New York, New Jersey, Illinois, Connecticut and Florida—say that the proposal by the Federal Housing Finance Agency (FHFA) would unfairly punish them for taking steps to protect borrowers from wrongful foreclosures. The five states are "judicial" states where lenders must seek court approval before a foreclosure can be completed. This can make the foreclosure process take longer, and the FHFA says that the delays cause Fannie Mae and Freddie Mac to lose more money on foreclosures in those states. Read more. (Subscription required.)
ANALYSIS: RISK SEEN IN SOME MORTGAGE BONDS
After a surge in bonds backed by mortgages on commercial properties, some investors are finding cracks in the foundations, the Wall Street Journal reported today. Investors flocked to these bonds, which are made up of pools of loans linked to properties such as shopping malls and hotels, because of the relatively high yields they offered. But that demand has sent prices soaring, and yields tumbling to record lows. As well, some investors remain worried that defaults on these loans remain at historically high rates. In November, 9.71 percent of commercial-mortgage loans tied to these securities were at least 30 days delinquent, according to data provider Trepp. Delinquency rates were below 1 percent in October 2008. Nevertheless, investors are buying both older bonds, which were issued when underwriting standards were looser, as well as new ones. Sales of such bonds rose 46 percent to $44 billion in 2012, according to data provider Commercial Mortgage Alert. Richard Hill, a strategist at RBS Securities in Stamford, Conn., forecasts sales will rise to $65 billion in 2013, the highest since the record high of $228 billion in 2007. Read more. (Subscription required.)
ABA: CONSUMERS PAYING DOWN DEBT DESPITE OBSTACLES
The American Bankers Association said today that consumers continued to pay down debt in the third quarter of 2012, but slow job growth and the expiration of a tax cut could mean it will become more difficult to repay loans, Reuters reported. The composite ratio's delinquency rate fell to 2.16 percent of all accounts in the third quarter from 2.24 percent in the second quarter, the ABA said. Bank card delinquencies, which are not part of the composite, fell to 2.75 percent during the quarter, the lowest level since 1994, the group said. Read more.
COMMENTARY: WHAT IS INSIDE AMERICA'S BANKS?
Though the nation's political leaders and bankers have made efforts over the past four years to save the financial industry, clean up the banks, and reform regulation in order to restore trust and confidence in the American financial system, more work is still needed, according to a commentary in the latest edition of the Atlantic Monthly. Banks today are bigger and more opaque than ever, and they continue to behave in many of the same ways they did before the 2008 crash, according to the commentary. According to Gallup, back in the late 1970s, three out of five Americans said that they trusted big banks “a great deal” or “quite a lot.” Since the financial crisis of 2008, trust has evaporated as fewer than one in four respondents in June 2012 told Gallup that they had faith in big banks—a record low. A recent survey by Barclays Capital found that more than half of institutional investors did not trust how banks measure the riskiness of their assets. When hedge-fund managers were asked how trustworthy they find “risk weightings”—the numbers that banks use to calculate how much capital they should set aside as a safety cushion in case of a business downturn—about 60 percent of those managers answered 1 or 2 on a five-point scale, with 1 being “not trustworthy at all.” None of them gave banks a 5. At the heart of the problem is a worry about the accuracy of banks’ financial statements. Accounting rules have proliferated as banks, and the assets and liabilities they contain, have become more complex. Yet the rules have not kept pace with changes in the financial system, according to the commentary. Read the full commentary.
OUTLOOK FOR 2013 RESTRUCTURINGS, PROVIDED BY BLOOMBERG BRIEF
Read what leading restructuring professionals are saying about the coming activity predicted for the retail, real estate, financial services and energy industries this year. Also explore a comprehensive 2012 bankruptcy year-in-review with charts, tables and data. The report is provided as an exclusive to ABI members by our partners at Bloomberg Brief. To download your copy of the “Bloomberg Brief Bankruptcy & Restructuring 2012 Review & 2013 Outlook” report, please click here.
For more on the 2013 bankruptcy outlook, be sure to watch Bloomberg Law Bankruptcy Columnist Bill Rochelle’s latest video post.
ABI IN-DEPTH
LATEST CASE SUMMARY ON VOLO: VIEIRA V. ANDERSON (IN RE BEACH FIRST NATIONAL BANCSHARES INC.; 4TH CIR.)
Summarized by Jennifer Lyday of Womble Carlyle Sandridge & Rice, LLP
The Court of Appeals for the Fourth Circuit affirmed the district court's judgment, which dismissed the trustee's complaint for negligence and breach of fiduciary duty against the former officers and directors of a now bankrupt bank because the trustee did not have standing to bring the derivative claims under FIRREA as the right to pursue such claims belongs to the FDIC, regardless of whether the FDIC wishes to pursue the claims.
There are more than 700 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI’s Volo website.
NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: COULD 2013 SEE LEHMAN BEING PUT BACK TOGETHER AGAIN?
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog features experts offering their predictions for 2013, including the possible reconstitution of Lehman Brothers.
Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.
ABI Quick Poll
A licensee of a trademark has the right to retain the license even when a debtor rejects the underlying contract creating the license. (Sunbeam Products, 7th Cir.)
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
INSOL INTERNATIONAL
INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.
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