Month: December 2008

Banking Industry Developments

On December 16, the FDIC approved its 2009 operating budget with an increase of over $1 billion from 2008. The increase is attributed to the continuing work associated with recent bank failures and the expected increase in bank failures in 2009.  Proposed Budget.

On December 16, the federal banking and thrift regulatory agencies approved a final rule permitting a banking organization to reduce the amount of goodwill it must deduct from tier 1 capital by any associated deferred tax liability. Previously, such netting was not permitted and the full carrying cost of goodwill was deducted for regulatory capital reporting purposes. The final rule is substantively identical to the proposal issued in September and will be effective 30 days after publication in the Federal Register. However, banking organizations may adopt its provisions for purposes of regulatory capital reporting for the period ending December 31, 2008.  OCC Release.

 

 

Rating Agency Criteria Updates and Predictions

On December 15, S&P released an advanced notice of proposed ratings criteria changes to CLO tranches. On December 16, S&P released an advanced notice of proposed ratings criteria changes to CMBS ratings. In each case, S&P noted that the number and severity of rating downgrades for the respective securities would likely increase in 2009 and that there would likely be an increase in recommended credit enhancement levels. S&P Ratings Criteria Update – CMBS. S&P Ratings Criteria Update – CLOs.

On December 16, Fitch Ratings predicted that loan modifications for loans underlying 2005 -2007 vintage RMBS will increase over the next twelve months from virtually none to 15% of all such loans.  Press Release.

The Rating Agency materials require a free registration, which can be accessed through the links above.

 

Korean Bank Recapitalization

On December 18, 2008 the Korean government announced a 20,000 billion won (US$15.1 billion) bank recapitalization fund to be launched in January to help banks replenish capital and encourage them to lend into the Korean economy. The Bank of Korea plans to lend 10,000 billion won to the fund, subject to approval by its monetary policy committee. Public investors will inject an additional 8,000 billion won by purchasing securities issued by the fund, with the state-owned Korea Development Bank to provide the remaining 2,000 billion won. The fund will be operated until the end of 2009. Banks will be able to voluntarily tap the fund through the sale to the fund of new preferred shares and equity-type bonds.  Financial Services Commission Report.

 

 

 

UK Credit Guarantee Scheme

On December 15, the U.K. government announced proposed changes to its 2008 Credit Guarantee Scheme, including a reduction in fees for participation in the program, a lengthening of the term of the program from 3 years to 5 years (i.e., to April 2014), and an expansion of the program to cover qualifying debt issued in currencies other than Sterling, Euro and U.S. dollars. The changes will become effective upon determination by the European Commission of the European Union that the program, as changed, does not run afoul of state aid rules of the European Community Treaty. HM Treasury Release.

 

 

The Madoff Matter

Last week, federal authorities arrested Bernard L. Madoff in connection with what appears to be an investment fraud of epic proportions, possibly totaling $50 billion. On December 15, the Securities Investor Protection Corporation(the “SIPC”) announced that it will be liquidating Bernard L. Madoff Investment Securities LLC under the Securities Investor Protection Act. The SIPC also filed an application in New York federal court requesting certain investor protections available under the Act. SIPC Release.

Civil lawsuits have now been filed against investment funds, fund managers and auditors alleging fraud, negligence, recklessness, and breach of fiduciary duties. Such lawsuits may be covered in many instances by E&O and/ or D&O policies. Corporate policyholders with any potential exposure to the Madoff fraud should take steps to better understand and assess their potential insurance coverage. Orrick Client Alert.

 

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President-Elect Obama Names SEC and CFTC Chairmen and Fed Governor

On December 17, President-elect Barack Obama announced that Mary L. Schapiro will be the next SEC Chairman to replace current Chairman Christopher Cox. At the same time, the President-elect announced the selection of Gary Gensler as the Chairman of the Commodity Futures Trading Commission and Dan Tarullo as a Governor of the Federal Reserve Board. All of these positions will be subject to Senate confirmation. For an analysis of what these appointments might signal in terms of the Obama Administration’s positions on regulation of the financial industry, see Orrick Client Alert.