On December 14, the FDIC approved a final rule which sets the insurance fund’s designated reserve ratio at 2% of estimated insured deposits. The Dodd-Frank Act requires a minimum ratio of 1.35%. The ratio is set by the FDIC based on: (i) risk of loss to the insurance fund, (ii) economic conditions affecting the banking industry, (iii) the prevention of sharp swings in the assessment rates and (iv) any other factors deemed important by the FDIC. FDIC Release. Final Rule.
Month: December 2010
Attorney General Post-Election Reference Guide
Orrick has developed an Attorney General Post-Election Reference Guide to assist clients in learning about the Attorneys General (AGs) in all 50 states and the District of Columbia, including the 19 new incoming AGs. This past election was one of great significance because more than ever before in our nation’s history, AGs are recognized for playing an increasingly powerful and multifaceted role in their states. Guide.
**The Guide will be updated as new AGs are appointed by incoming Governors, and the updated Guide will be made available in the State Governments tab above. For more information, please contact Lori Kalani.
MBIA Files RMBS-Related Action Against Morgan Stanley and Affiliates
On December 6, 2010, MBIA Insurance Corp. filed an action against Morgan Stanley and certain of its affiliates in New York State Supreme Court, Westchester County, alleging that Morgan Stanley fraudulently induced MBIA to insure $223 million of RMBS certificates backed by Alt-A loans. MBIA alleges that it has identified loans that breach the representations and warranties made by the defendants in pre-contract negotiations, but that it has been rebuffed in its efforts to have those loans repurchased. MBIA also alleges that the loan pool servicer has failed to undertake appropriate loss mitigation efforts. Complaint.
Defendant’s Motion to Dismiss Granted in KKR Class Action
On November 17, 2010, Judge Paul A. Crotty of the United States District Court for the Southern District of New York granted in its entirety the Defendant’s motion to dismiss in a securities class action brought against KKR Financial Holdings LLC, a REIT heavily invested in RMBS. Plaintiffs alleged that KKR had not sufficiently disclosed in its April 2007 registration statement the degree of risk associated with the leverage in its portfolio. The Court found that the allegations were “conclusory, based on hindsight,” that the registration statement clearly disclosed the risks associated with KKR’s financing, and that KKR was under no obligation to provide dollar estimates of potential future losses. Decision.
FHLBP Claims Dismissed In Part
On November 29, 2010, Judge R. Stanton Wettick Jr. of the Court of Common Pleas of Allegheny County, in Pittsburgh, Pennsylvania, decided motions to dismiss three RMBS actions in which the Federal Home Loan Bank of Pittsburgh (FHLBP) alleged misrepresentations by various J.P. Morgan and Countrywide affiliates and three rating agencies (Moody’s, S&P and Fitch). The court dismissed all claims asserted against the rating agencies except for state law fraud claims. The court sustained a variety of claims against the J.P. Morgan and Countrywide defendants, however, and rejected their argument, relying on the Fifth Circuit’s decision in Lone Star Fund V (U.S.) v. Barclays Bank, PLC, 594 F.3d 383 (5th Cir. 2010), that the offering documents’ disclosure of a sole “repurchase or cure” remedy for non-conforming mortgage loans demonstrated that there was no misrepresentation. Decision.
Rating Agencies
On December 6, Fitch released a report on the projected performance of the U.S. structured finance market in 2011. Fitch Release.
On December 6, S&P requested comments on its proposed criteria for the equity content classification of certain bank hybrid capital instruments. S&P Release.
On December 7, Fitch updated its criteria for analyzing servicer advance receivables trusts. Fitch Release.
Note: Free registration is required for Fitch and S&P releases and reports.
Recent Orrick Alerts
Court Allows Use of Wiretap Evidence in Galleon Insider Trading Case – On November 24, Judge Richard J. Holwell of the Southern District of New York denied defendant Raj Rajaratnam’s motion to suppress the government’s wiretaps in the highly publicized Galleon insider trading case, allowing the admissibility of volumes of wiretap recordings to be used as evidence for the first time in a criminal insider trading case. Click here to read more.
SEC Proposes Rules Exempting Certain Private Fund Advisers from Investment Adviser Registration – The SEC has published for comment proposed rules to implement certain new exemptions from registration under the Investment Advisers Act of 1940. Click here to read more.
ISDA Releases Two Transparency Studies
On December 8, ISDA published two studies on transparency in the OTC derivatives industry with respect to credit default swaps and interest rates swaps. The studies highlight the spectrum of methods that can be used to increase transparency while analyzing the benefits and costs of doing so. ISDA Release.
CFTC and SEC Request Comments for Derivatives Industry Study
On December 9, the CFTC and the SEC requested comments for a study mandated by the Dodd Frank Act on the feasibility of requiring the derivatives industry to adopt standardized computer-readable algorithmic descriptions to be used to describe complex and standardized financial derivatives. The CFTC and the SEC have asked interested parties to respond to a forty-one question survey addressing various topics, including: (i) the calculation of net exposures to complex derivatives, (ii) the current practices concerning standardized computer descriptions of derivatives, and (iii) the need for and implementation of standardized computer descriptions of derivatives. Comments must be submitted to the CFTC by December 31. CFTC Release.
CFTC Proposes Rules on Swap Data Recordkeeping and Reporting
On December 8 and 9, the CFTC proposed rules required under the Dodd-Frank Act prescribing standards for swap data recordkeeping and reporting for swap data repositories, derivatives clearing organizations, designated contract markets, swap execution facilities, swap dealers, major swap participants and other swap counterparties. Comments must be received on or before February 7, 2011. CFTC December 8 Proposed Rule. CFTC December 9 Proposed Rule.