ABA: CONSUMER LOAN DELINQUENCIES FALL ACROSS THE BOARD
The American Bankers Association said that U.S. consumer-loan delinquencies fell across the board in the fourth quarter, Bloomberg News reported today. Total delinquencies in the 11 loan categories surveyed by the Washington, D.C.-based trade group fell to 2.49 percent of all accounts, from 2.59 percent in the preceding quarter, the ABA said today in its Consumer Credit Delinquency Bulletin. The report covering a three-month period through Dec. 31 marked the first time in eight years all 11 loan categories fell in the same quarter. The ABA attributed the results to consumers paying down debts, helped by low interest rates. The ABA survey, which defines delinquency as a late payment that is 30 days or more overdue, found that credit card late payments dropped to 3.17 percent of all accounts, from 3.25 percent, equaling the lowest level since 2001, the ABA said. Home-equity credit line delinquencies fell to 1.69 percent of all accounts, from 1.93 percent in the third quarter. Read more.
COMMENTARY: OBAMACARE FOR THE FINANCIAL INDUSTRY
The best way to understand the Dodd-Frank Act is to think of it as Obamacare for the financial industry, according to a commentary by American Enterprise Institute fellow Peter J. Wallison in the Weekly Standard. Like its health care counterpart, it leaves the members of the massive financial services industry as privately owned firms, but blankets them with so much regulation that they are no longer really independent operators, according to Wallison. The current controversies over the Volcker Rule and the Consumer Financial Protection Bureau, for all the attention they have drawn, according to Wallison, are really minor matters compared with the overall structure and effect of the act. The newly created Financial Stability Oversight Council (FSOC) may designate any financial firm as a "systemically important financial institution" (SIFI) if in the council's judgment its failure could cause "instability" in the U.S economy. This applies to all financial firms—insurers, securities firms, finance companies, hedge funds, pension funds, perhaps even mutual funds and private equity firms, and of course banks. All banks and bank holding companies with assets of more than $50 billion are designated as SIFIs in the act, but the designation of nonbank financial firms as SIFIs is left to the FSOC. Other than the $50 billion threshold for banks, there are no numerical or empirically discernible standards for this decision, according to Wallison. The FSOC has put out draft regulations for comment that cite such things as "interconnectedness" as a factor in the designation, but how they are to be measured is left completely in the council's discretion. As we have seen before—with Fannie Mae and Freddie Mac, the largest banks, and the auto companies—if the government thinks the consequences of failure are unacceptable it will step in, Wallison notes. Read the full commentary.
MICHIGAN CASE PUTS FOCUS ON "BAD BOY" PROVISIONS IN FORECLOSURE CASES
A legal fight in Michigan could have repercussions throughout the commercial real estate sector, potentially giving many debtholders across the U.S. new grounds to recover money from landlords who lost their properties to foreclosure, the Wall Street Journal reported yeterday. An appellate court in Michigan surprised many industry observers in December when it upheld a lower-court ruling against the former owner of a Traverse City, Mich., strip mall, David Schostak, who surrendered his company's property in 2010 after defaulting on an $8.7 million loan. This debt was carved up and sold as commercial mortgage-backed securities when the loan was made. Rather than just accept the keys to the property, the bondholders, represented by Wells Fargo & Co. as a trustee, sued Schostak personally. They said they could do so because of a "bad-boy" provision in the loan documents that allow lenders to go after owners' personal wealth if they take certain prohibited actions. Usually such clauses primarily are designed to prevent borrowers from using a bankruptcy protection filing as a shield when properties run into problems. However, the debtholders argued in the case of Schostak's loan that the clause also applied if the special-purpose entity that was set up to own the property did not remain solvent. Schostak's attorneys said the bad-boy provision was never intended to be so far-reaching, and it would be incorrect to interpret the loan as a recourse loan, which allows debtholders to go after the borrower's personal wealth. Read more. (Subscription required.)
LITIGANTS FRUSTRATED BY CHRYSLER'S 2009 BANKRUPTCY SHIELD
Despite a few consumers' efforts to hold Chrysler Group LLC legally responsible for faulty vehicles, Chrysler is immune from new punitive-damage claims from any alleged manufacturing defects in vehicles sold before the automaker's 2009 government-brokered restructuring, the Wall Street Journal reported today. Specifically, the company's immunity—which no other car maker has—stems from a clause Chrysler crafted in its 2009 bankruptcy sale to Italy's Fiat SpA. The exemption applies to more than 28 million cars and trucks. The legal protection afforded Chrysler, now profitable for the first time in six years, allows the Auburn Hills, Mich., company to "essentially get a free pass on some of their most egregious past mistakes," said Douglas Laycock, a University of Virginia law professor and punitive-damages expert. The automaker did agree to remain responsible for future product-liability lawsuits involving vehicles sold before its Fiat deal, even though consumers can pursue only compensatory, or actual, damages in those cases. Chrysler's new vehicles are not affected. Read more. (Subscription required.)
SOLYNDRA FALLOUT STALLS ENERGY LOANS
Still reeling from the fallout of the Solyndra bankruptcy, energy industry officials say that the Energy Department is putting loans through such exacting reviews that some renewable-energy funds look as if they never will be disbursed, the Wall Street Journal reported today. The issue came into focus on Tuesday when the new chief executive of Fisker Automotive Inc. said that the company would consider giving up on a hybrid-electric car factory in Delaware and building it overseas if it cannot secure its financing. Until recently, the cornerstone of that financing was to come from a $529 million loan by the Energy Department. Vice President Joe Biden visited the site—a closed General Motors Co. plant—in October 2009 when the deal was approved and touted it as a part of a strengthening of American manufacturing. The department froze loan disbursements last May after Fisker missed a performance milestone, and the two sides have been negotiating since. Fisker now is seeking new partners. It announced $392 million in new financing earlier this week and Chief Executive Tom LaSorda said that if an overseas investor emerges, the factory could move abroad. Read more. (Subscription required.)
HAVEN'T REGISTERED YET FOR ABI'S 30TH ANNUAL SPRING MEETING? REGISTER BY SUNDAY FOR YOUR CHANCE TO WIN THE NEW IPAD!
All new registrations received this week for ABI’s 30th Annual Spring Meeting, scheduled for April 19-22, 2012, at the Gaylord National Resort and Convention Center at National Harbor, Md., are entered in to win the new iPad! The conference will feature the 16th Annual Great Debates, 20 committee educational sessions and up to 17 hours of CLE, including 6 hours of ethics! Nearly 1,000 are already registered. The Friday luncheon will feature a keynote by New York Times Business Editor and Columnist Gretchen Morgenson.
Concurrent sessions include:
• What Do Clients Want from Their Professionals?
• TMA Panel: Effective Presentation of Financial Analysis
• Circuit Splits and Supreme Court Preview
• 21st Century Ethics
Chapter 11 Track
• Mock Chapter 11 Confirmation Hearing
• Is the Chapter 11 Industry Distressed?
• Bankruptcy Court Jurisdiction and Beyond: Stern v. Marshall and Other Sticky Jurisdiction Issues
• Tee Up the Lawsuits! What’s Left for Unsecured Creditors after the Sale?
Financial Advisor Track
• Demystifying Financial Methodology in the Bankruptcy Case
• Bankruptcy Court Jurisdiction and Beyond
• Preparing a Company for Sale: Practical Insight into How to Sell a Distressed Company
• Consumer Ethics: Balancing Business and Practice, and the Multiple Roles of Consumer Debtor’s Counsel
• Beyond HAMP and HARP: What's Next for Underwater Homeowners
• Section 524(i) and Beyond: The Use of Non-Standard Chapter 13 Plan Terms
• Who Should Police the Mortgage Servicers? Should This Be Up to the States, the New CFPB or Debtor Class-Actions?
Professional Development Track
• Evidentiary Privileges in Bankruptcy: Traps for the Unwary
• Navigating Ethical Responsibility in a Complex World
• Expert Testimony Can Make or Break a Bankruptcy Case
• Dos and Don’ts of Effective Oral and Written Advocacy
Optional events range from a golf tournament at Lake Presidential Golf Club, a "suite experience" baseball game at Nationals Park and the always-popular musical troupe, The Capitol Steps. There will also be a special 30th anniversary luncheon on Saturday, April 21, featuring a panel of ABI past presidents, moderated by William J. Rochelle, Editor-at-Large at Bloomberg News (New York), to reflect on changes in practice over the last 30 years and the emerging challenges for professionals. Click here to register.
LATEST CASE SUMMARY ON VOLO: PETERSON V. MCGLADREY & PULLEN, LLP (IN RE LANCELOT INVESTORS FUNDS, L.P., ET AL.; 7TH CIR.)
Summarized by Paul Lucey of Michael Best & Friedrich LLP
The Seventh Circuit reversed and case remanded an order by the U.S. District Court for the Northern District of Illinois dismissing the trustee's negligence claim against debtors' former auditor (for failure to discover a Ponzi scheme involving the debtors). Facts pled in complaint (and facts district court apparently took notice of) did not establish the auditor's in pari delicto defense. But such a defense would be available, if the facts established in subsequent proceedings support it, according to the Seventh Circuit. The cause of action, as defined under Illinois law, permits such a defense. When the cause of action became property of the estate under Section 541, the in pari delicto defense was not stripped from it.
More than 450 appellate opinions are summarized on Volo typically 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: SYSTEMICALLY IMPORTANT IN THREE EASY STEPS? FSOC APPROVES FINAL RULE FOR NONBANK SIFI DESIGNATIONS
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post further examines the Financial Stability Oversight Council’s (FSOC) approval of its long-awaited Final Rule implementing Section 113 of the Dodd-Frank Act, the controversial provision that directs the federal government to identify systemically important financial institutions (SIFIs) outside the traditional banking sector that could pose a threat to the U.S. financial system.
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.
SAVE THE DATE FOR THE LABOR & EMPLOYMENT COMMITTEE'S "EVOLVING LABOR ISSUES IN CHAPTER 11" WEBINAR
Make sure to mark your calendars for May 23 from 2-3 p.m. ET for the ABI Labor and Employment Committee's "Evolving Labor Issues in Chapter 11" Webinar. A panel of experts will be discussing recent developments in several large complex bankruptcy cases, including Hostess, Kodak, Nortel and American Airlines. The expert panel includes Babette A. Ceccotti of Cohen, Weiss & Simon LLP (New York), Jeffrey B. Cohen of Bailey & Ehrenberg PLLC (Washington, D.C.), Marc Kieselstein of Kirkland & Ellis LLP (New York) and Ron E. Meisler of Skadden, Arps, Slate, Meagher & Flom LLP.
Issues to be discussed include:
• Hostess' efforts to eliminate their multi-employer pension plan contribution liability through motions to reject their labor agreements under Section 1113.
• Kodak's attempt to terminate retiree health benefits.
• The effect of the automatic stay upon efforts by the U.K. Pension Protection Fund and the U.K. Nortel Pension Plan to enforce its powers under the U.K. Pensions Act.
• American Airlines' efforts to reduce legacy costs in bankruptcy.
A registration link is forthcoming, but make sure to mark your calendars for May 23 for a webinar you will not want to miss!
ABI Quick Poll "Liquidating chapter 11 plans" should be prohibited; conversion to chapter 7 should be the only option for a business case to end in liquidation. Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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