BANKS CONTINUE TO GROW DESPITE GOVERNMENT'S STEPS TO ELIMINATE "TOO-BIG-TO-FAIL"
Two years after President Obama vowed to eliminate the danger of financial institutions becoming "too big to fail," the nation's largest banks are bigger than they were before the nation's credit markets seized up and required unprecedented bailouts by the government, Bloomberg News reported yesterday. Five banks -- JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. -- held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to central bankers at the Federal Reserve. Five years earlier, before the financial crisis, the largest banks' assets amounted to 43 percent of U.S. output. The "Big Five" today are about twice as large as they were a decade ago relative to the economy, sparking concern that trouble at a major bank would rock the financial system and force the government to step in as it did in 2008 with the Fed-assisted rescue of Bear Stearns Cos. by JPMorgan and with Citigroup and Bank of America after the Lehman Brothers bankruptcy, the largest in U.S. history. "Market participants believe that nothing has changed, that too-big-to-fail is fully intact," said Gary Stern, former president of the Federal Reserve Bank of Minneapolis. Read more.
COMMENTARY: BANKS DO NOT NEED TO GAMBLE WITH TAXPAYER MONEY
The Volcker Rule portion of the Dodd-Frank financial reform law is necessary to correct a mistake that poses a danger to our economy: the repeal in 1999 of the Glass-Steagall Act, according to a commentary in today's Wall Street Journal. Commercial banks have since been able to trade a wide variety of inherently risky securities with huge amounts of government-insured deposits, according to the commentary, and if the investments failed, taxpayers would have to swallow the losses. Glass-Steagall, enacted in the Great Depression, had insured bank deposits but prohibited banks from using these deposits for securities trading, and for good reason. The Volcker Rule is intended to correct this mistake by constraining banks with explicit or even implied taxpayer support from proprietary trading. Those opposed to the Volcker Rule have a long list of objections, according to the commentary, including that prohibiting banks from proprietary trading will create illiquidity in bond markets and that it will impose costs on banks and slow the economy. All banks with significant securities holdings now use various methods of internal risk management. Going forward, according to the commentary, each bank should be required to agree with its regulator on conservative loss limits and maintain its risk profile accordingly. The regulator would verify a bank's overall risk-management approach periodically and have ongoing access to changes in the bank's projected risk in real time. Read the full commentary. (Subscription required.)
MOST CREDIT CARD LENDERS SEE DELINQUENCIES DROP IN MARCH
American Express Co., Bank of America Corp. and other large credit card lenders saw their borrowers' payment habits improve again in March, though loan write-offs edged up for some issuers, Dow Jones Newswires reported yesterday. Delinquencies continue to drop for the country's largest issuers of credit cards, despite expectations that credit performance will turn lower this year as some lenders relax their requirements in pursuit of loan-balance growth. American Express, the largest credit card issuer by spending, reported in a filing yesterday with the Securities and Exchange Commission that its delinquency rate for U.S. card loans fell to 1.3 percent in March from 1.4 percent in February. Its net charge-off rate, or percentage of loans deemed uncollectible, was flat at 2.4 percent. Bank of America also saw its March performance improve as it reported that its delinquency rate fell to 3.6 percent from 3.75 percent in February. Its net charge-off rate also fell, to 5.48 percent from 5.56 percent. Citigroup Inc. reported declines in both metrics yesterday for the first quarter, while Discover Financial Services, which reported March results last week, saw both numbers drop for the month. However, Capital One Financial Corp. and JPMorgan Chase & Co. saw net charge-offs edge up slightly. Read more.
CONSUMERS STEPPED UP SPENDING IN MARCH
American consumers stepped up spending on electronics, clothes and a host of other items in March, the Wall Street Journal reported today. Retail sales increased 0.8 percent in March after a 1 percent gain in February, the government said yesterday. Within the retail report, autos and building materials also advanced, rising 0.4 percent over the month after a 0.5 percent gain in February. A separate report Monday showed that businesses continued to build inventories in February, a factor that also is likely to contribute to first-quarter growth. Business inventories increased 0.6 percent in February compared with 0.8 percent growth in January. Read more. (Subscription required.)
HOENIG SWORN IN AS FDIC BOARD MEMBER
Thomas Hoenig, the former president for the Federal Reserve Bank of Kansas City and keynote speaker at ABI's luncheon at the 2011 NCBJ Annual Conference, was sworn in yesterday as a member of the board of directors of the Federal Deposit Insurance Corp. Hoenig retired as president of the Federal Reserve Bank of Kansas City in October. Shortly after Hoenig retired, President Obama nominated him for the FDIC board. The U.S. Senate confirmed him on March 30, along with Martin Gruenberg and Jeremiah Norton. Hoenig is a well-known critic of too-big-to-fail financial institutions. When he served on the Federal Reserve's Open Market Committee in 2010, Hoenig gained national recognition as the lone dissenter about keeping a key interest rate at or near zero for an extended period. He voted against the Fed’s monetary policy eight consecutive times. Read more.
U.S. TRUSTEE PROGRAM RE-OPENS COMMENT PERIOD ON PROPOSED GUIDELINES FOR ATTORNEY COMPENSATION IN LARGE CHAPTER 11 CASES
The U.S. Trustee Program has re-opened the comment period until May 21, 2012, on proposed guidelines for reviewing applications for attorney compensation in large chapter 11 cases ("fee guidelines"). The USTP also scheduled a public meeting for June 4, 2012, at the U.S. Department of Justice in Washington, D.C. on the proposed fee guidelines. Click here for more information on submitting comments or attending the public hearing.
REPORT: TOP LAWYERS SEE BILLING RATE BOOST LAST YEAR
TyMetrix Inc., a legal software and analytics company, and Corporate Executive Board Co., a business research and advisory firm, released a report yesterday showing that partners in the top 25 percent of hourly billers boosted their average price to $873 an hour last year, up 4.9 percent from 2010, the Wall Street Journal reported. Meanwhile, the country's lowest-billing partners struggled to keep pace with inflation. Partners in the bottom 25 percent charged an average of $204 last year, up just 1.3 percent, according to the report. The study examined billing rates at more than 4,000 firms. On the whole, lawyers last year pushed through the biggest overall annual rate increase, 5.1 percent, since the recession, when many firms froze prices or scaled back increases to keep clients happy. Read more. (Subscription required.)
REPORT: TOP LAWYERS SEE BILLING RATE BOOST LAST YEAR
The World Bank's Insolvency Initiative and ABI are jointly convening a working group to discuss the bankruptcy treatment of financial contracts at ABI's Annual Spring Meeting on Friday, April 20. As a registered attendee to this year's program, you are welcome to attend. The panels at the program include:
• Overview of Financial Contracts and Their Special Treatment in Insolvencies
• Criticisms of Special Treatment: Which Financial Contracts Warrant It?
• What Counterparties to Financial Contracts Deserve Special Treatment?
• Methods to Limit Potential Prejudice to Third Parties Resulting from Special Treatment of Financial Contracts
For more information on the World Bank Program at ASM and a list of speakers, please click here.
FREE WEBINAR ON APRIL 24 TO EXAMINE ORAL ARGUMENTS MADE BEFORE THE SUPREME COURT IN THE RADLAX CASE
Join ABI for a free webinar on April 24 at 3:30 p.m. ET featuring experts examining the Supreme Court oral arguments made the day before in the RadLAX case. The Court is examining whether a debtor may pursue a chapter 11 plan that proposes to sell assets free of liens without allowing the secured creditor to credit-bid, but instead providing it with the indubitable equivalent of its claim under § 1129(b)(2)(A)(iii) of the Bankruptcy Code. The webinar will be an hour long and will feature:
Jason S. Brookner of Andrews Kurth LLP (New York), who was cited in the brief for the respondent.
David Neff (invited) of Perkins Coie LLP (Chicago), the counsel of record for RadLAX Gateway Hotel LLC.
Prof. Charles Tabb, the Alice Curtis Campbell Professor of Law at the University of Illinois College of Law.
Prof. Tabb recently published a paper titled "Credit Bidding, Security, and the Obsolescence of Chapter 11."
The moderator for the session will be ABI Resident Scholar Prof. David Epstein. To RSVP for the free webinar, please click here.
LATEST CASE SUMMARY ON VOLO: FRIEDMAN V. P+P, LLC (IN RE FRIEDMAN; 9TH CIR.)
Summarized by Lovee Sarenas of the U.S. Bankruptcy Court of the Central District of California
In a 2-1 decision, the Bankruptcy Appellate Panel for the Ninth Circuit held that the absolute priority rule as set forth under 11 USC Sec. 1129(b)(2)(B)(ii) is inapplicable in individual chapter 11 debtor cases. The majority explained that the plain reading of the Secs. 1129(b)(2)(B)(ii) and 1115, read together, warrants a finding that the proscription of Sec. 1129(b)(2)(B)(ii) on the retention of ownership interests by an individual debtor is not an aspect of the absolute priority rule in individual debtor chapter 11 cases. The use of the terms "included" in Sec. 1129(b)(2)(B)(ii) and "in addition to" in Sec. 1115 essentially created the universe of property of the estate to include pre- and postpetition assets of the individual chapter 11 debtor. The BAP explained further the BAPCPA amendments to individual chapter 11 cases adopted provisions from chapter 13 wherein creditors are not permitted to vote but can object to plan confirmation. According to the BAP, these amendments are an attempt by the drafters to create a symmetry between chapters 11 and 13 for individual debtors. Thus, a plain reading of Secs. 1129 and 1115 demonstrates that to confirm a plan for chapter 11 individual debtors, the application of the absolute priority rule is not required. The dissent adopted the narrow view in interpreting the provisions of Secs. 1129(b)(B)(ii) and 1115 finding that the BAPCPA amendments with respect to chapter 11 individual debtors did not make the absolute priority rule inapplicable. The dissent focused on the interpretation of the term "included" in Sec. 1129(b)(2)(B)(ii) to mean properties that are "added" to the estate under Sec. 1115. Accordingly, the absolute priority rule remains applicable to prepetition property of the estate of an individual chapter 11 debtor and inapplicable only to postpetition assets that are listed under Sec. 1115. This reading avoids the inevitable result created by the majority's "broad" view which renders certain provisions of the Code superfluous.
More than 470 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: THE FINANCIAL PERILS OF ATHLETIC STARDOM
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post takes a look at the recent bankruptcy filing of former NFL player Warren Sapp and why so many former professional athletes end up filing for bankruptcy after their playing careers are over.
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 Section 363 sales should be possible only for a limited percentage of assets; sales of a greater percentage of assets should be subject to creditor voting in the plan confirmation process.Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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