NEWS AND ANALYSIS
DETROIT CHAPTER 9 SENDS WARNING TO OTHER CITIES, BONDHOLDERS
Bankruptcy Judge Steven Rhodes' decision on Tuesday to authorize Detroit's chapter 9 bankruptcy serves as a warning for government leaders who are grappling with budget problems, bondholders and unions that are fighting cuts, the Detroit Free Press reported today. Although no one expects a sudden rush of municipal bankruptcy filings, unions fear that chapter 9 may become a more viable option for distressed municipalities after Judge Rhodes ruled that pensions could be cut as a way for Detroit to dig itself out of debt. The ruling comes as pensions, which are straining municipal budgets throughout the country, have become the target of other cities and states that are dealing with chronic debt. As Rhodes was issuing his ruling Tuesday that pensions are fair game for cuts under bankruptcy, state lawmakers in Illinois were passing a bill to overhaul that state's pension system, cutting an estimated $90 billion to $100 billion in pension benefits over three decades. In California, several cities have filed for bankruptcy in recent years with huge pension obligations looming -- but none have targeted pension cuts. "This is going to be a playbook used by other cities," University of Michigan bankruptcy law professor John Pottow said of Detroit's strategy. "It's pretty huge because the courts in California, which has very similar laws, have tried to avoid coming to a decision on it before." Read more.
STUDENT DEBT OWED BY CLASS OF 2012 RISES TO $29,400
U.S. college students are leaving school with higher amounts of debt as they increase borrowing to keep up with rising tuition, Bloomberg News reported yesterday. Graduates of the class of 2012 who took loans for bachelors' degrees owed an average of $29,400. The level of debt represents an average annual increase of 6 percent from the $23,450 incurred by borrowers who graduated in 2008, the last year the federal government reported the data, according to a report released yesterday by The Institute for College Access & Success, an Oakland, California-based nonprofit group. The share of college seniors with debt rose to 71 percent from 68 percent in the four-year period. States with the highest debt were in the Northeast and Midwest, led by Delaware. Read more.
For further analysis of the student debt and bankruptcy issues, be sure to pick up a copy of ABI's Graduating with Debt: Student Loans under the Bankruptcy Code, now available in the ABI Bookstore.
TREASURY SECRETARY: REFORMS MAKING FINANCIAL SYSTEM SAFER
U.S. Treasury Secretary Jacob Lew said that post-crisis efforts to bolster the financial system have made the U.S. economy safer, but added that more work is needed, including international protections that mirror those here, the Wall Street Journal reported today. Lew said that while efforts to implement the 2010 Dodd-Frank law have "taken longer than we hoped," the rules are largely falling into place and are helping to bolster the financial system. He said that more needs to be done, including ensuring that U.S. regulators have resources to enforce the rules and the adoption of robust protections by global counterparts to fortify the international financial system. Lew said that the regulatory efforts have reduced the attractiveness of being a large bank by raising the cost -- part of an effort to ensure no bank remains "too big to fail." He stopped short of declaring victory in saying that the U.S. has ended the chance that any bank is so large it would need a government rescue if it ran into trouble, but added that while he believes the U.S. "will meet that test ... there is no precise point at which you can prove with certainty that we have done enough." He said that the U.S. was prepared to go further if necessary. Read more. (Subscription required.)
WALL STREET TRADE GROUPS SUE CFTC OVER DODD-FRANK RULES
Wall Street's biggest lobbying groups have banded together to sue the Commodity Futures Trading Commission, seeking to curb the overseas reach of its rules and rein in a regulatory barrage by its departing Chairman Gary Gensler, Bloomberg News reported yesterday. The suit, filed yesterday in federal court in Washington, D.C., seeks to overturn guidance that the CFTC approved in July. The trade associations, which represent Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank AG and other swap dealers, say that the agency illegally set regulations by issuing guidance documents and staff advisories rather than formal commission-approved rules. The lawsuit focuses on the often arcane way that agencies set policy. Formal agency rules require cost-benefit analysis and votes by commissioners, who are picked by the president and confirmed by the Senate. The guidance document in July, which was approved in a commission vote, lacked economic analysis. The advisories in November lacked both economic analysis and a formal vote. While the groups asked the court to vacate the CFTC policy, the case could have the practical effect of slowing the foreign trading rules. Read more.
ANALYSIS: SMALLER MORTGAGE LENDERS LEAD FIELD
Big banks have been retrenching from the mortgage business recently, leaving smaller players to pick up larger chunks of business, the Wall Street Journal reported today. As of the third quarter, smaller mortgage players held a 60 percent market share of the U.S. origination market, up from 39 percent in 2009, according to industry publication Inside Mortgage Finance. In the third quarter alone, the smaller lenders, defined as those outside the top five, gained about six percentage points of market share, according to data compiled by Paul Miller, an analyst with FBR Capital Markets. The midsize and smaller players have grown despite tightening their underwriting standards, much like larger banks have since the financial crisis. But the smaller banks' capital rules aren't as stringent as those that make mortgages a costly enterprise for the biggest firms. Big banks began pulling out of certain mortgage businesses after new international rules required them to hold more capital for certain assets. Big banks "don't have the same view of the value of those assets relative to the cost of capital today," explained Jim Cutillo, chief executive of Stonegate Mortgage. Read more. (Subscription required.)
LATEST ABI PODCAST EXAMINES RECENT BANK SETTLEMENTS AND "TOO BIG TO JAIL"
In light of recent bank settlements over bad behavior stemming from the financial crisis, ABI Resident Scholar Prof. Kara Bruce talks with Prof. Gregory Gilchrist of the University of Toledo Law School about why more indictments against banks or their employees have not occurred. Gilchrist, who is the author of the forthcoming University of Colorado Law Review article, "The Special Problem of Banks and Crime," discusses recent settlements and the issues surrounding "too big to jail." Click here to listen.
NOW AVAILABLE FOR PRE-ORDER: BEST OF ABI 2013: THE YEAR IN CONSUMER BANKRUPTCY
Now available for pre-order in the ABI Bookstore is Best of ABI 2013: The Year in Consumer Bankruptcy. This must-have reference contains the best ABI Journal articles and papers from ABI's top-rated educational seminars selected by ABI Board Member Alane Becket of Becket & Lee LLP (Malvern, Pa.) to cover the most important developments in consumer bankruptcy for 2013. The book delves into such timely topics as the foreclosure crisis, tax issues, the latest on chapter 13, student loans and much more, and it also features relevant case summaries drawn from ABI's Volo site (volo.abi.org). Make sure to log into www.abi.org to get your discounted ABI member pricing. The book will ship in mid-December. Click here to order.
ATTENDING ABI'S WINTER LEADERSHIP CONFERENCE? MAKE SURE TO USE THE WLC APP!
If you are currently attending ABI's 25th Annual Winter Leadership Conference in Rancho Palos Verdes, Calif., be sure to utilize the WLC app currently available for Apple iOS and Google Android devices. Use the app to pull up the conference schedule, download program materials, find out about speakers and sponsors and let your voice at the conference be heard over social media! Click here to download the app.
NEXT WEEK'S ABILIVE WEBINAR LOOKS AT HOW TO HIRE THE RIGHT FINANCIAL ADVISORS
ABI's Financial Advisors & Investment Banking Committee
is proud to present the next abiLIVE webinar, "How to Hire the Right Financial Advisors," on Dec. 11 from 1-2:15 p.m. ET. The program will provide attendees with an overview and basic understanding of the different types of financial advisors that may be relevant for in- and out-of-court cases. Topics include:
- The different types of financial advisors available;
- The benefits and limitations for each category of advisor; and
- How to select the right advisor for the job.
Speakers on the webinar include:
-Daniel F. Dooley of MorrisAnderson (Chicago)
-Gregory S. Hays of Hays Financial Consulting LLC (Atlanta)
-Ivan Lehon of Ernst & Young (New York)
-Allen Soong of Deloitte CRG (Los Angeles)
-Teri Stratton of Piper Jaffray & Co. (El Segundo, Calif.)
Registration is $75 for ABI members/$175 for non-members. Have a number of colleagues that would like to participate? Take advantage of group pricing for ABI members: register 5 or more and the registration cost drops to $60 per person!
Click here for more information and to register.
ABI IN-DEPTH
RENEW YOUR ABI MEMBERSHIP BY DEC. 31 AND SAVE!
Beginning in January 2014, ABI will institute its first dues increase to the regular dues rate in six years. The $20 increase will ensure that ABI can continue to provide you with the latest and most effective tools available in insolvency information and education. You can lock in 2013 rates, and additional discounts, for up to three years by using a multi-year renewal option (save $75!). You can also save 10 percent on future dues by opting into the automated dues program. To renew your membership and save, please go to renew.abi.org.
ABI LAUNCHES SIXTH ANNUAL WRITING COMPETITION FOR LAW STUDENTS
Law school students are invited to submit a paper between now and March 4, 2014 for ABI's Sixth Annual Bankruptcy Law Student Writing Competition. ABI will extend a complimentary one-year membership to all students who participate in this year's competition. Eligible submissions should focus on current issues regarding bankruptcy jurisdiction, bankruptcy litigation, or evidence issues in bankruptcy cases or proceedings. The first-place winner, sponsored by Invotex Group, Inc., will receive a cash prize of $2,000 and publication of his or her paper in the ABI Journal. The second-place winner, sponsored by Jenner & Block LLP, will receive a cash prize of $1,250 and publication of his or her paper in an ABI committee newsletter. The third-place winner, sponsored by Thompson & Knight LLP, will receive a cash prize of $750 plus publication of his or her paper in an ABI committee newsletter. For competition participation and submission guidelines, please visit http://papers.abi.org.
NEW CASE SUMMARY ON VOLO: JONES V. U.S. TRUSTEE, EUGENE (9TH CIR.)
Summarized by David Shemano of Peitzman Weg LLP
The Ninth Circuit ruled that fraud that would have served as grounds for denying a chapter 7 discharge if it had been known at the time of the discharge can serve as grounds for the later revocation of that discharge.
There are more than 1,000 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: RISK OF LENDER CONCENTRATION OVERLOOKED IN HOUSING REFORM DEBATE
The Bankruptcy Blog Exchange is a free ABI service that tracks more than 80 bankruptcy-related blogs. A new blog post finds that ignoring the effects of loan seller origination, sourcing and servicing processes in a post-GSE secondary market could generate losses for taxpayers.
For witness testimony and a video of the hearing, please be sure to visit http://commission.abi.org.
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 holder of an unstayed judgment, which is subject to an ongoing appeal, can qualify as a petitioning creditor under § 303(b)(1).
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 43 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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