While taxpayers surrendered $81.8 billion to bail out General Motors and Chrysler, many commentators also forget to mention GM's tax gift courtesy of the U.S. Treasury, according to an editorial in yesterday's Wall Street Journal. Corporations in the red are allowed to carry forward net operating losses that reduce their future tax liability, and GM had accumulated about $45 billion in such profit-shielding chits by 2008, with a book value of about $18 billion. When companies enter bankruptcy, carry-forwards disappear or are greatly limited under IRS section 382, which kicks in when ownership changes by more than 50 percentage points. The point is to prevent companies from buying assets solely for tax arbitrage or tax avoidance, according to the editorial, but starting in 2009, the Treasury began to issue regulatory "notices" that suspend this law when it comes to Treasury-owned stock. The provisions also apply to AIG and Citigroup. So when GM entered bankruptcy in June 2009, the government swapped the debt the automaker owed it as a creditor for 61 percent of "new GM," while handing another chunk to the United Auto Workers. However, the new GM also inherited the accumulated net operating losses that would have turned into disadvantage in normal bankruptcy, according to the editorial. Read more. (Subscription required.)
BERNANKE SAYS VOLCKER RULE WILL NOT BE READY FOR JULY DEADLINE
The controversial Volcker Rule, a provision of the 2010 Dodd-Frank financial reform law, will not be ready by the July 21 deadline stipulated in the legislation, Federal Reserve Chairman Ben Bernanke told lawmakers at a House Financial Services Committee hearing yesterday, CongressDaily reported. "I don’t think it will be ready for July," he said. "Just a few weeks ago, we closed the comment period. We had about 17,000 comments. We have a lot of very difficult issues to go through, so I don’t know the exact date." The rule would ban banks from engaging in proprietary trading but would still permit market-making trades. But distinguishing between the two is very difficult, the Fed chair said. The rule allows for a two-year transition period for firms, starting in July. Bernanke assured lawmakers that despite the lateness in rulemaking, regulators would allow institutions time to adapt to whatever rule is put out.
BANKS REV UP LENDING
The Federal Deposit Insurance Corp. (FDIC) released a report on Tuesday that U.S. banks posted their biggest quarterly increase in lending in four years, the Wall Street Journal reported yesterday. The FDIC report also showed that the banking industry posted a $119 billion profit for 2011, up 40 percent from a year earlier and the banks' biggest profit since 2006, when the housing boom was in full swing. However, in a sign of the tough choices facing banks, the industry's annual revenue dropped for the first time since 2008 and only the second time in 74 years. Low interest rates, several years of anemic loan demand and new limits on fees that lenders can levy on their customers have eaten into the top line, leaving bankers searching for new ways to generate income without angering clients. Read more. (Subscription required.)
REPORT: SECOND LIENS NO SANCTUARY IN TIMES OF DISTRESS
As issuance of second-lien debt gains traction after the post-credit crisis hiatus, a new report from Moody's Investors Service warned that investors should beware the false sense of security these instruments may invoke, Dow Jones DBR Small Cap reported yesterday. Second-lien debt, which became commonplace during the leveraged-buyout boom of the oughts and peaked at around $40 billion in 2007, carries a claim on the borrower's assets and usually offers higher interest rates than debt higher in the capital structure, but that does not necessarily translate into better recovery, Moody's said in a research report on Tuesday. Read more. (Subscription required.)
FTC: ID THEFT, DEBT COLLECTION TOP CONSUMER COMPLAINT LIST IN 2011
Data released on Tuesday by the U.S. Federal Trade Commission showed that identity theft topped the 2011 list of the most complained about problems facing U.S. consumers for the 12th year in a row, CreditCards.com reported yesterday. Nearly 15 percent of the 1.8 million complaints logged with local, state and federal agencies involved stealing someone's personal information. A quarter of the ID theft complaints involved tax- and wage-related fraud, according to the FTC's annual tally of problems generating the most consumer complaints. Problems with debt-collection practices and agencies ranked No. 2. Read more.
ABI IN-DEPTH
LATEST CASE SUMMARY ON VOLO: SUMPTER V. KIRSCHNER (IN RE YELLOWSTONE MOUNTAIN CLUB, LLC; 9TH CIR.)
Summarized by Dean Rallis of SulmeyerKuptez, APC
The Ninth Circuit affirmed the Montana District Court’s order affirming the bankruptcy court’s grant of summary judgment in favor of the liquidating trustee determining and fixing the amount of damages arising from the rejection of an executory contract.
More than 400 appellate opinions are summarized on Volo. Click here regularly to view the latest case summaries on ABI’s Volo website.
NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: COURT RULES COLLECTION LETTER TO DECEASED CO-BORROWER DID NOT VIOLATE AUTOMATIC STAY
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent post examines a recent decision in which a court ruled that a collection letter to a deceased co-borrower did not violate bankruptcy's automatic stay.
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 The requirement that all individual debtors receive credit counseling as a prerequisite for discharge should be repealed. Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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