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U.S. regulators yesterday warned about the dangers lurking in the booming market for loans to struggling companies, acting to combat concerns over emerging bubbles in parts of the financial sector, the Wall Street Journal reported today. The Federal Reserve and other banking regulators said that the controls and quality checks applied by lenders when extending leveraged loans have deteriorated. They also questioned whether some banks are doing enough to accurately gauge the risks of these practices. "Financial institutions unprepared for such stressful events and circumstances can suffer acute threats to their financial condition and viability," the regulators said. The warning came in the form of guidance, which lays out regulators' expectations for how banks should act. It said that regulators will closely monitor banks' underwriting of the loans, typically used to finance buyouts or acquisitions, as well as the ability of firms to manage their lending and withstand loan-related losses.

Auto lender Ally Financial Inc.'s banking unit said it would sell its remaining mortgage servicing rights portfolio to online lender Quicken Loans Inc. for about $280 million, Reuters reported yesterday. Ally, which is 74 percent-owned by the U.S. government after a series of bailouts, has been exiting the mortgage business as part of a plan to focus on auto lending and Internet banking. Detroit-based Quicken is buying collection rights on $34 billion of non-delinquent Freddie Mac and Fannie Mae mortgages. Quicken, which has a $90 billion mortgage servicing portfolio, said that it would become a top-10 servicer after the purchase.

Bankruptcy Judge Martin Glenn said yesterday that Residential Capital LLC should try to negotiate a new foreclosure-review process with federal regulators before seeking a bankruptcy court order to halt the $300 million program, Bloomberg News reported yesterday. Judge Glenn said that he would not rule immediately on the company's request to suspend its obligation to find any damages suffered by borrowers who went through foreclosure. ResCap, through its GMAC Mortgage unit, agreed to the review under a settlement with U.S. regulators before filing for bankruptcy last year. The review, which may cost about $300 million, is a waste of money because a new federal policy allows a lump-sum payment to be split among borrowers, a lawyer for ResCap said today. That would be cheaper than paying PricewaterhouseCoopers LLP to conduct the review, the company said.

A new study has found that banks, including JPMorgan Chase, Goldman Sachs and Morgan Stanley, all have provisions that allow acceleration of payments owed to senior executives if they take government jobs, the New York Times DealBook blog reported today. Such a benefit was highlighted recently during the confirmation hearing for Jacob J. Lew as Treasury secretary. His previous employer, Citigroup, had guaranteed him preferential financial treatment if he were to leave to take a job in the government. "These companies seem to be giving a special deal to executives who become government officials," says the study, to be released today by the Project on Government Oversight. Current oversight rules allow such payments. In 1990, the Supreme Court ruled that Boeing was within its rights to make lump sum severance payments to several employees when they quit Boeing to take senior military posts. The Project on Government Oversight says that the rules governing executive sales of stock were tightened in 2004, as a response to the collapse of the energy company Enron. In the weeks before filing for bankruptcy, Enron had paid out millions of dollars in accelerated payments to senior executives. Now it is much harder for companies to speed up stock payments, but there is a government service exemption that allows for some leeway.

Creditors of defunct financing vehicles of private equity giant TPG Capital are escalating a battle over whether a dissolved entity can be forced into bankruptcy, Reuters reported yesterday. In court papers filed on Monday, the creditors asked a bankruptcy judge to deny a bid by one of the financing vehicles to have an involuntary chapter 7 petition dismissed. The creditors, a group of hedge funds led by SPQR Capital, filed the bankruptcy petition in December against TPG Troy LLC. TPG Troy argued last month that it could not be in bankruptcy because, essentially, it no longer exists. But SPQR and fellow creditors say that dissolved companies are still liable for their debts. The creditors hold notes issued by subsidiaries of TIM Hellas, a Greek telecommunications company that was owned in part by TPG Troy. They claim they are owed 111 million euros ($143 million) after Hellas defaulted on the notes.

Peregrine Financial Group Inc.'s chapter 7 trustee won court approval to create three classes of firm commodity customers, a ruling that he said may lead to full repayment for one class of account holders, Bloomberg News reported yesterday. Bankruptcy Judge Carol A. Doyle yesterday approved trustee Ira Bodenstein's request to divide account holders based on whether they traded on U.S. commodity exchanges, traded on exchanges outside the country, or hold warehouse receipts for taking or making delivery under commodity contracts. Such a division may enable customers who traded on foreign commodities exchanges to be repaid in full, Bodenstein said after the hearing. Peregrine, a Cedar Falls, Iowa-based commodities firm with offices in Chicago, filed to liquidate in July after the National Futures Association said more than $200 million in customer funds were missing.

Freddie Mac sued Bank of America Corp., UBS AG, JPMorgan Chase & Co. and a dozen other banks over alleged manipulation of the London interbank offered rate, saying that the mortgage financier suffered substantial losses as a result of the companies’ conduct, Bloomberg News reported today. Government-owned Freddie Mac accuses the banks of acting collectively to hold down the U.S. dollar Libor to "hide their institutions' financial problems and boost their profits," according to a complaint filed in federal court. "Defendants' fraudulent and collusive conduct caused USD LIBOR to be published at rates that were false, dishonest, and artificially low," Richard Leveridge, a lawyer for Freddie Mac, said in the complaint, which was made public yesterday. Manipulation of interest rates by some of the world’s biggest banks has spawned probes by half a dozen agencies on three continents in what has become the industry’s largest and longest-running scandal. More than $300 trillion of loans, mortgages, financial products and contracts are linked to Libor.

JPMorgan Chase & Co.’s management rating was downgraded in a confidential government scorecard over concerns about the company's management and its board, the Wall Street Journal reported today. The New York company's management rating from the Office of the Comptroller of the Currency fell one notch last July to a level that signifies oversight "needs improvement," following the revelation of what are known as the "London Whale" trading losses. The grading is on a scale of 1 to 5, with 5 being worst. JPMorgan had been at level 2, indicating "satisfactory management." The downgrade to level 3, according to comments on the scorecard, was not solely related to a London employee's large trades—in indexes tracking the health of a group of companies—that led to losses exceeding $6 billion.

The U.S. Senate Banking Committee approved the nomination of Richard Cordray to head the Consumer Financial Protection Bureau in a party-line vote that reflected the remaining obstacle to his confirmation effort, Bloomberg News reported yesterday. Yesterday's 12-10 committee vote saw all of the panel's Democrats back Cordray, while Republicans unanimously opposed him. Despite the committee approval, President Barack Obama's second nomination of Cordray, the former Ohio attorney general cannot be confirmed unless Senate Republicans and Democrats can overcome a deadlock that has prevented a full-Senate vote. Cordray’s nomination has been mired since 2011 in a dispute over Republican demands that the agency be restructured with a commission to run it instead of a director and a budget subjected to congressional appropriations. Its budget is currently drawn directly from the Federal Reserve.

JPMorgan Chase will make changes to protect consumers who have borrowed money from a rising power on the Internet—payday lenders offering short-term loans with interest rates that can exceed 500 percent, the New York Times DealBook blog reported yesterday. JPMorgan, the nation’s largest bank by assets, will give customers whose bank accounts are tapped by the online payday lenders more power to halt withdrawals and close their accounts. Under changes to be unveiled yesterday, JPMorgan will also limit the fees it charges customers when the withdrawals set off penalties for returned payments or insufficient funds.