Energy Companies Lead 22 Percent Rise in Chapter 11 Filings

Chapter 11 filings have increased by about 22 percent in 2016 compared with the previous year, which has been led by energy companies, showing that in an economy with only sluggish growth, there are industry-specific issues that need to be addressed, TheStreet.com reported on Monday. Joseph M. Esmont of Baker & Hostetler LLP in Cleveland, a commercial attorney with experience in distressed oil and gas assets and troubled financial institutions, said that the increased number of filings may actually signal a strengthening economy. The U.S. economy is forecast to grow by 1.8 percent in 2016, compared with last year's GDP growth of 2.1 percent, according to the Federal Open Market Committee. From Jan. 1 to Oct. 15, there were a total of 133 chapter 11 filings from companies holding $25 million in assets or more, and 53 of those petitions came from companies in the energy and environmental services industries, according to The Deal's bankruptcy database.

Get a better understanding of what happens when an oil, gas or other natural resources company goes bankrupt. Order your copy of ABI’s revised and expanded When Gushers Go Dry: The Essentials of Oil & Gas Bankruptcy, Second Edition.

Commentary: Plan to Bail Out “Too Big to Fail” Banks Raises Skepticism

In recent weeks, the latest installment has been delivered in the attempt to explain how certain supersize U.S. financial institutions would be addressed under the Bankruptcy Code if they were to fail, according to a commentary by Prof. Stephen J. Lubben of Seton Hall University Law School in the New York Times DealBook blog. The Dodd-Frank Act, enacted in 2010 in response to the collapse of Lehman Brothers and all other near failures of 2008-09, requires that all large financial institutions, including the U.S. units of foreign financial institutions, prepare plans explaining how they would face their own “Lehman moment.” This exercise is consistent with the notion that Dodd-Frank’s “orderly liquidation authority,” an insolvency system in which the Federal Deposit Insurance Corp. would act as a receiver of a distressed financial institution, is to act only as a backstop to normal bankruptcy procedures. Some, particularly those abroad, consider this a fool’s errand, according to Lubben. Banking regulators seem to be skeptical about the role of a bankruptcy judge, who will not have a pre-existing relationship with the financial institution, in the resolution process. The new plans are mostly notable for injecting intermediate holding companies into the banks’ organizational structure. This new holding company addressed the obvious bankruptcy law problems that would result from previous plans to have the bankrupt holding company transfer money to its venerable subsidiaries just before filing for bankruptcy.

Cordray Outlines Next Three Priority Areas for CFPB Enforcement Actions

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray highlighted the bureau's work in helping the housing economy to recover, while emphasizing to the industry more regulation and oversight remain to come, HousingWire.com reported on Wednesday. After citing some of the "encouraging signs" of progress in the housing recovery, Cordray revealed three priority areas for CFPB enforcement and supervision in the next year:

1. Consumer complaints: Cordray emphasized the importance lenders should be placing on these indicators of how they are serving customers, admonishing lenders to study not only their own internal complaint system, but use the CFPB's complaint database to learn how they can avoid mistakes that other lenders are making. 

2. Redlining: While "we could all wish this was a historic injustice of the past," Cordray said, the Bureau identified this as a target for its supervisory work, and has teamed up with the U.S. Department of Justice to bring major enforcement actions against institutions found to be discriminatory in their lending.

3. RESPA violations: The Bureau is not backing down in its RESPA enforcement in light of the recent PHH Corp. v. CFPB ruling, Cordray said. He noted that the case "is not final at this point" and that the Bureau "respectfully disagrees" with the finding. The CFPB will continue to adhere to its 2015 bulletin regarding marketing servicing agreements, Cordray said. 

Senate Democrats Demand Tougher Clawback Rules After Wells Fargo Scandal

Senate Democrats yesterday called on regulators to tighten the rules on how to claw back pay from financial executives, citing the lax treatment of Wells Fargo's leaders in the wake of the bank's fake accounts scandal, the Washington Examiner reported today. Sixteen Democratic senators wrote to the heads of the financial regulatory agencies that wrote rules on bank executive pay this spring, and asked them to strengthen those rules to prevent further scandals. Allowing the Wells Fargo officials to keep their bonuses "sends a dangerous signal to other executives that you can oversee excessive risk-taking and widespread fraud and still get a multi-million-dollar payout," the letter stated. "Therefore, we need tough rules that will ensure that executives who engage in this type of misconduct will have their bonuses clawed back so we can deter similar actions in the future."

Slowdown in State, Local Investment Dents U.S. Economy

A sharp pullback in spending by cities and states on infrastructure — from highways to sewage systems to police stations — is weighing on U.S. economic growth, the Wall Street Journal reported today. Such government austerity is unusual in the eighth year of an economic expansion, and it is acting as a headwind just as the worst effects of the energy-industry bust, a strong dollar and inventory drawdown are fading. State and local governments spent an annualized $248.5 billion on construction in August — the least since March 2014 and down nearly 11 percent from its recent peak in mid-2015. The decline depressed gross-domestic-product growth this spring and was on track to weigh on growth again in the third quarter. Many state governments have yet to fully recover from the recession and the associated steep declines in tax revenue. In late 2015, inflation-adjusted tax revenue was lower in 21 states, compared with the peak before or during the recession, according to Pew Charitable Trusts. The situation doesn’t seem to be improving. Preliminary data indicates that state tax revenue fell 2.1 percent in the second quarter from a year earlier, after advancing just 1.6 percent in the first quarter, according to the Rockefeller Institute of Government.

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