On September 7, 2011, District Court of Maryland Judge Ellen Lipton Hollander granted in part and denied in part Barclays Capital, Inc.’s motion to dismiss Thornburg Mortgage, Inc.’s Chapter 11 trustee’s claims for breach of contract and the covenants of good faith and fair dealing. The Trustee alleged that in August 2007 Barclays made improper margin calls and seizures of MBS that Thornburg financed through a repurchase agreement with Barclays. According to the Trustee, Barclays based its margin calls on inappropriately low valuations and liquidated Thornburg’s MBS at low prices, thereby causing Thornburg economic losses. While Judge Hollander upheld the Trustee’s allegations on the breach of contract claim as sufficient, she granted Barclays’ motion to dismiss the bad faith claim, finding it was redundant with the breach of contract claim. Decision.
Month: September 2011
Rating Agency Developments
On September 15, S&P requested comment on proposed changes to its methodology and assumptions for U.K. RMBS. S&P Release.
On September 15, Fitch updated its CDO cash flow analysis rating criteria. Fitch Release.
On September 15, Fitch updated is criteria for rating global rental fleet ABS transaction. Fitch Release.
On September 15, Fitch updated its criteria for aircraft Enhanced Equipment Trust Certificates (EETCs). Fitch Release.
On September 14, Moody’s provided its approach to rating auto lease securitizations. Moody’s Report.
On September 14, S&P revised its U.S. credit card ABS assumptions for establishing rating-specific stress scenario purchase and payment rate modeling parameters. S&P Release.
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OCC Interim Final Rule on Retail Forex Transactions
On September 12, the OCC adopted an interim final rule to expand its rule on retail foreign exchange transactions to also apply to Federal savings associations and to make conforming changes to required risk disclosure statements. The rule became effective on September 12. Any federal savings associations engaged in a retail foreign exchange business prior to July 12 must request a supervisory no-objection within 30 days of the effective date to continue this business. OCC Release. OCC Interim Final Rule.
MSRB Proposed Rule Change for Credit Ratings Disclosure
On September 12, the MSRB filed a proposed rule change with the SEC to extend the effective date of the requirement to post credit ratings on the EMMA public website. The proposed rule changes the effective date from October 13 to December 13. MSRB Release.
MSRB Advisory on Applicability of Rules to Bank Loans and Direct Purchases
On September 12, the MSRB issued an advisory on the potential applicability of MSRB rules to certain municipal finance transactions, known as “bank products“, which may entail securities transactions that trigger regulatory requirements. The advisory covers “bank loans” that could, depending on the nature of the transactions, be placements of municipal securities, as well as “direct purchases” by banks of securities that are later so significantly restructured that they may constitute primary offerings of securities. MSRB Release. MSRB Advisory.
MSRB Delay of Municipal Advisor Rule Proposals
On September 12, the MSRB announced that it is delaying its municipal advisor rule proposals currently before the SEC. Until the SEC finalizes the definition of municipal advisor, the MSRB will delay its proposed rules on fiduciary duty, pay to play, fair dealing, supervisions, gifts, and assessments. MSRB Release.
CFTC Proposed Implementation Schedule For New Swap Requirements
On September 8, pursuant to Sections 723(a)(3) and 723(a)(8) of the Dodd-Frank Act, the CFTC proposed amendments to regulations to phase in compliance dates for the new clearing and trade execution requirements for swaps under Sections 2(h)(1), 2(h)(2) and 2(h)(8) of the Commodity Exchange Act. Comments must be submitted within 45 days after publication in the Federal Register. CFTC Fact Sheet. CFTC Proposed Rules.
The CFTC also proposed rules, pursuant to Section 731 of the Dodd-Frank Act, establishing a schedule to phase in compliance with the new trading documentation and margin requirements for swaps under Sections 4s(i)(1) and 4s(e) of the Commodity Exchange Act. Comments must be submitted within 45 days after publication in the Federal Register. CFTC Fact Sheet. CFTC Proposed Rules.
Rules for Resolution Plans for Financial Institutions
On September 13, the FDIC approved a final rule to be issued jointly with the Fed to implement Section 165(d) of the Dodd-Frank Act. The rule requires bank holding companies with assets of $50 billion or more and companies designated as systemically important by the FSOC to periodically report plans for rapid and orderly resolution upon material financial distress or failure. Submission deadlines are staggered based on asset size, with the first submissions due on July 1, 2012. FDIC Release.
The FDIC also approved an interim final rule, which becomes effective on January 1, 2012, to require insured depository institutions with $50 billion or more in assets to submit periodic contingency plans to the FDIC for resolution upon the institution’s failure. Comments must be submitted within 60 days after publication in the Federal Register. Interim Final Rule.
S.D.N.Y. Judge Grants In Part and Denies In Part Bank’s Motion to Dismiss Complaint by Financial Guaranty Insurer
On September 8, 2011, Judge Jed Rakoff of the Southern District of New York released a memorandum in support of his July 7, 2011 Order granting in part and denying in part Flagstar Bank’s motion to dismiss Assured Guaranty Municipal Corp.’s complaint against it arising out of agreements entered into in 2005 and 2006 for Assured to wrap $1 billion worth of securities issued by Flagstar. Judge Rakoff (1) rejected the argument that the insurer’s sole remedy under the agreements was cure or repurchase of the offending loans, (2) held that Assured was entitled only to indemnification for claims brought by third parties, not for claims brought by Assured, (3) found it reasonable to infer that the credit issues Assured allegedly discovered in loans that had been charged-off extended to non-charged off loans, (4) held that Assured’s claims regarding non-charged off loans were ripe even though Assured did not request they be repurchased, and (5) rejected Flagstar’s assertion that any “Transfer Deficiency” remedy had no effective value. Decision.
Foreign Pension Fund Sues Deutsche Bank Over Mortgage-Backed Securities
On September 7, 2011, Stichting Pensioenfonds ABP, a pension fund based in the Netherlands, sued Deutsche Bank and certain of its officers in New York state court, alleging the bank committed fraud by misrepresenting the quality of the loans underlying its mortgage-backed securities. In support of its claims that Deutsche Bank knew about the poor quality of the loans and the loan originators’ noncompliance with underwriting guidelines, the fund cites the Financial Crisis Inquiry Commission and the Levin Report for the proposition that Deutsche Bank entered into credit default swaps to short the securities. The complaint seeks monetary damages and rescission based on claims for common law fraud, aiding and abetting, and negligent misrepresentation. Complaint.