%1

Casino giant Caesars and a group of its creditors traded competing lawsuits over the company's plans to rework its more than $20 billion debt load, the Wall Street Journal reported today. A representative for junior bondholders of Caesars Entertainment Operating Co., one of the companies that controls Caesars's more than 50 casinos, filed a lawsuit on Monday accusing Caesars of moving assets between entities to protect its "good" assets from creditors as the rest of the company's financial condition deteriorated. Caesars, meanwhile, filed its own lawsuit yesterday accusing a group of mostly junior bondholders of trying to push Caesars Entertainment Operating into default by interfering in the company's restructuring efforts. The dueling lawsuits are the latest moves in the contentious restructuring of the Caesars Entertainment Corp. group, which has struggled since private-equity firms Apollo Global Management LLC and TPG led a roughly $30 billion leveraged buyout of the company in 2008.

The U.S. Circuit Court of Appeals for the Second Circuit ruled yesterday that Barclays Plc is entitled to about $6 billion of disputed assets as part of its hurried purchase of much of Lehman Brothers Holdings Inc.’s brokerage unit at the height of the 2008 financial crisis, Reuters reported yesterday. The decision is a setback for the brokerage's creditors, including Lehman affiliates and hedge funds, for whom the trustee James Giddens has been seeking to recoup money. Lehman had been Wall Street's fourth-largest investment bank. It had $639 billion of assets when it filed for chapter 11 protection on Sept. 15, 2008, making its bankruptcy by far the biggest in U.S. history. Barclays won court approval to buy much of Lehman's brokerage business at a Sept. 19, 2008 hearing overseen by U.S. Bankruptcy Judge James Peck in Manhattan. A dispute remained, however, over how to dispose of various "cash" assets of the brokerage. These included about $4 billion of margin assets held by third parties to support a Lehman exchange-traded derivatives business, and $1.9 billion of "clearance box" assets used to process securities trades.

In a sweeping rebuke to Wall Street, U.S. regulators said that 11 of the nation's biggest banks haven't demonstrated they can collapse without causing damaging economic repercussions and ordered them to try again, the Wall Street Journal reported today. The Federal Reserve and the Federal Deposit Insurance Corp. said that bankruptcy plans submitted by big banks make "unrealistic or inadequately supported" assumptions and "fail to make, or even to identify, the kinds of changes in firm structure and practices that would be necessary to enhance the prospects for" an orderly failure. The regulators raised the specter of slapping banks with tougher rules on capital and leverage or restrictions on growth — and even eventually forcibly breaking them up — should they fail to make significant progress to address the shortcomings by July 2015. The findings applied to 11 banks with assets greater than $250 billion, including Bank of America Corp., Bank of New York Mellon Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, State Street Corp., and the U.S. units of Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, and UBS AG. The 2010 Dodd-Frank law required banks to submit an annual "living will" detailing their operations and exposures as well as how they could be dismantled without relying on government support in the event they reach the brink of failure.

A Federal Reserve survey released yesterday showed that U.S. banks eased lending requirements amid a widespread increase in demand during the second quarter, Bloomberg News reported yesterday. “Survey results showed a continued easing of lending standards and terms for many types of loan categories amid a broad-based pickup in loan demand,” the Fed said yesterday in its quarterly survey of senior loan officers. The central bank surveyed 75 domestic banks and 23 U.S. units of foreign banks from July 1 to July 15. While “many banks reported having eased standards for prime residential real estate loans, respondents generally indicated little change in standards and terms for other types of loans to households.” Even with the lending increases, Fed Chair Janet Yellen said that tight credit has caused the housing recovery to be slow. “It is difficult for any homeowner who doesn’t have pristine credit these days to get a mortgage,” she said in June. Some Fed officials have become concerned that competition among banks in other markets could be getting overheated. “We have seen signs of reaching-for-yield behavior in the leveraged loan market, subprime auto lending and corporate bonds,” Fed Kansas City Bank President Esther George said in a July 15 speech.

Outgoing American International Group Inc. Chief Executive Robert Benmosche left parting gifts for his successor, delivering strong earnings and settling a large piece of crisis-era litigation, the Wall Street Journal reported today. In the last earnings report overseen by Benmosche, the New York-based insurer yesterday posted a 13 percent jump in second-quarter profit, aided by solid results in its core operations and a gain from the last of a series of divestitures prompted by its 2008 government bailout. Separately, AIG agreed to pay $960 million to settle claims that it misled investors about its financial health from 2006 to 2008, in one of the largest settlements of investor litigation stemming from the financial crisis.

Federal prosecutors have begun a civil investigation into the booming business of subprime auto lending, focusing on the packaging and selling of questionable loans to investors, the New York Times reported today. The inquiry is being undertaken amid worries among some regulators that checks and standards are being neglected as the subprime auto loan market surges, in a small, yet disturbing, echo of the subprime mortgage crisis. General Motors’ finance subsidiary disclosed in a securities filing yesterday that it had received a Justice Department subpoena for documents on the origination and the securitization of subprime loan contracts since 2007. The subpoena asks for the underwriting criteria and how the loans were represented to those who were pooling them and assembling securities to be sold to investors. U.S. attorney Preet Bharara is reviewing whether the lender sold questionable auto-loan investments to investors, and is focusing on whether the lender fully disclosed to investors the credit-worthiness of the borrowers whose loans made up the complex securities. In the inquiry, federal prosecutors are looking for potential violations of the Financial Institutions Reform, Recovery, and Enforcement Act. The law, known as Firrea, was passed after the savings and loan scandals in the late 1980s, and has been used recently by the government in investigations of the big banks’ sale of shoddy mortgage-backed securities before the financial crisis.

Portuguese authorities are providing 4.9 billion euros ($6.6 billion) in emergency funds to prevent the collapse of Banco Espirito Santo, one of the eurozone country’s oldest and biggest financial institutions, The Associated Press reported today. Bank of Portugal governor Carlos Costa said late Sunday that the money will come from a special fund set up during the eurozone’s recent financial crisis. The fund was created to help financial institutions in difficulty. The move came after Banco Espirito Santo’s share price lost around 75 percent of its value last week. The stock crashed after the bank reported a record half-year loss of 3.58 billion euros as previously unreported debts came to light after an audit. Shares were suspended from trading on Friday and continued to be halted Monday as authorities plan the bank’s restructuring. The scandal involving the Espirito Santo family has gripped public attention. It has also spooked international markets, which fear that the financial crisis that recently hit countries sharing the euro currency may not be over and that more financial secrets remain to be discovered. Costa said authorities were compelled to step in to prevent contagion to the rest of the Portuguese financial system.

Federal authorities are sounding alarms about a wide range of fraudulent schemes involving a popular prepaid money card product, the New York Times reported today. Thousands of consumers have been lured into sending money through the card, called MoneyPak. For online fraudsters, the reusable green-and-white paper card that can be used to quickly “reload,” or transfer, hundreds of dollars in cash onto another prepaid card is often the money conduit of choice, regulators and law enforcement officials say. The abuses are mounting as the market in prepaid cards is increasingly finding favor with Americans who don’t have access to a traditional bank account or credit card. The roughly $80 billion that consumers are expected to put on prepaid debit cards this year is double the amount put on those products in 2010, according to the Mercator Advisory Group, a banking industry consulting firm. Consumers also use the cards to transfer money into PayPal accounts to shop online. Law enforcement officials are also concerned about drug dealers and other criminals using MoneyPak to launder small sums of cash, because money transfers using the cards are hard to track. “We are increasingly seeing MoneyPaks used to facilitate Internet fraud schemes and it is a concern for us,” said David A. O’Neil, deputy assistant attorney general for the criminal division of the Justice Department. “Anything that makes it easier to get money from the victim to a fraudster concerns us.” The Consumer Financial Protection Bureau recently said that it was looking into consumer complaints about prepaid cards.

The $30 billion banks collect in overdraft fees each year may shrink as the U.S. Consumer Financial Protection Bureau imposes rules aimed at shielding customers from harm, Bloomberg News reported yesterday. The agency, which issued a study on the fees yesterday, is also weighing regulations to improve consumer awareness of overdraft costs and restrict how banks can debit transactions and impose fees, according to a senior agency official. “Despite recent regulatory and industry changes, overdrafts continue to impose heavy costs on consumers who have low account balances and no cushion for error,” Richard Cordray, the bureau’s director, said. “Overdraft fees should not be ‘gotchas’ when people use their debit cards.” The potential regulations are a response to the new study, which followed up on an earlier one released last year, documenting practices the CFPB says harms consumers. Banks and credit unions reaped $31.9 billion in overdraft fees in 2013, according to Lake Bluff, Illinois-based Moebs Services, a research firm. The CFPB drew its conclusions from anonymized data it collected through banks it supervises, those with assets of more than $10 billion.

U.S. regulators need flexibility in overseeing cross-border swaps, a lawyer for the Commodity Futures Trading Commission told a federal judge as he defended the agency’s reliance on guidance rather than formal rules in a lawsuit brought by Wall Street’s largest lobbying groups, Bloomberg News reported yesterday. Congress directed the CFTC to regulate overseas trading of swaps to prevent a catastrophic market failure like the one involving American International Group Inc. (AIG) in 2008, Robert Schwartz, a lawyer for the agency, said at a hearing in federal court in Washington, D.C. The CFTC didn’t want to bind itself “with inflexible rules,” Schwartz said. “The markets change all the time. They change their business practice to avoid regulation where they believe it is in their interest.” He asked U.S. District Judge Paul Friedman to dismiss the case, arguing that if swaps market participants prevail in court they would have “free rein to conduct their business overseas without consequences.” The lawsuit — also filed by the International Swaps and Derivatives Association and the Institute of International Bankers —is one of a series of Wall Street challenges to U.S. efforts to overhaul financial regulation following the worst economic collapse since the Great Depression. The trade groups represent Goldman Sachs Group Inc., Deutsche Bank AG, JPMorgan Chase & Co. and other swap dealers. The 2010 Dodd-Frank Act gave the CFTC power to bring swaps, which have been traded behind closed doors, under U.S. oversight for the first time.