During this period of challenge and rapid change in the financial industry, financial institutions and other financial services companies need advisors with broad experience and an understanding of the full range of business and legal issues associated with current market and regulatory changes.
With decades of experience representing financial industry participants in regulatory, transactional and dispute resolution matters, Hunton & Williams delivers an integrated approach to addressing the challenges and pursuing the opportunities in the current market, including those presented by the Emergency Economic Stabilization Act of 2008 and the associated Troubled Asset Relief Program of the U.S. Department of the Treasury.
Read MoreThe Federal Reserve Board announced today that the primary credit rate, the interest rate it charges on emergency loans to banks, would be raised by one-quarter percentage point from .5 percent to .75 effective Friday, February 19, 2010. Also known as the discount rate, the primary credit rate had been at .5 percent since December 2008.
Click here for further details from the Federal Reserve Board.
Today the Obama Administration detailed revised terms for a program designed to foster lending to small businesses in underserved communities through the Troubled Asset Relief Program (TARP). Originally announced in October 2009, the program provided lower-cost capital to Community Development Financial Institutions (CDFIs), such as community banks, thrifts and credit unions, which then provide loans to small businesses in underserved communities. The newly announced rules increase the amount of capital available to CDFIs, from 2 percent of risk weighted assets to 5 percent, and expands the number of institutions who qualify as a CDFI.
Click here for the Department of Treasury's key terms and enhancements to the TARP initiative.
In 2009, 140 banks failed. Yet, the number of banks with nonperforming assets that exceed 5 percent of total assets has continued to climb and now exceeds 1,000. Even the banks that are not deemed to be in a “troubled” condition are suffering the effects of the economic conditions. With commercial real estate values expected to continue to deteriorate in most markets through 2010, the incentive for many financial institutions is to “hunker down” to get through to the other side when economic conditions are expected to improve.
Continue Reading...Lehman Brothers Holdings Inc.’s September 15, 2008 bankruptcy was an event of default under thousands of derivatives contracts to which a Lehman entity was a party and for which Lehman Brothers Holdings was the guarantor. This default entitled the vast majority of Lehman’s counterparties to terminate these contracts, and almost all were terminated. The Lehman bankruptcy court will soon address a number of issues related to the termination of these contracts, including the enforceability of “flip clauses” subordinating amounts payable to Lehman on the termination of credit default swaps backing synthetic collateralized debt obligations (CDOs).
On December 15, 2009 FDIC undertook a couple of rulemaking matters of importance to securitizations by regulated institutions.
1. FDIC Safe Harbor for Sales of Assets in Securitizations. In 2000, the FDIC adopted a legal isolation safe harbor providing that the FDIC would not use its contract repudiation powers to “unwind” or otherwise challenge the integrity of securitizations satisfying the criteria for treatment as sales under generally accepted accounting principles in the event of the insolvency or receivership of the sponsoring bank. Earlier this year, the Financial Standards Accounting Board adopted revised criteria for sales under GAAP (FAS 166 and 167), under which most securitizations would not qualify as sales for GAAP accounting purposes. If the FDIC were not to respect the integrity of such securitizations, the rating agencies would not be able to provide the requisite ratings that make securitizations by banks viable.
Continue Reading...The House of Representatives passed the "The Wall Street Reform and Consumer Protection Act of 2009" (HR 4173) today in a vote of 223-202. The legislation creates the Consumer Financial Protection Agency, a council of regulators tasked with identifying companies that the federal government deems as so interconnected with other large companies that its failure would endanger the U.S. economy as whole, and addresses other financial areas like derivatives, hedge funds, lending practices, and dissolution of failing companies. The Senate is currently drafting its own bill on the same subject matter.
Click here for the House Financial Services Committee's press release, click here for HR 4173, click here for the bill's summary, and click here for the Treasury Department's press release.
On November 6, 2009, President Barack Obama signed into law the Worker, Homeownership, and Business Assistance Act of 2009 (the “Act”). The significant tax changes applicable to businesses under the Act are summarized below.1
Net Operating Loss Carryback. A net operating loss (“NOL”) for a taxable year is the excess of business deductions over the business’ gross income for that taxable year. Under current law, a taxpayer may “carry back” an NOL to offset taxable income of the two tax years immediately prior to the tax year in which the NOL is incurred and may then carry forward any remaining portion of the NOL up to 20 years to offset taxable income in future tax years. Current law also provides that “eligible small businesses” may elect to carry back an “applicable 2008 NOL” for three, four or five years. An “eligible small business” is generally defined as a taxpayer with annual gross receipts of $15,000,000 or less in the tax year in which the applicable 2008 NOL arose. For purposes of the election, an “applicable 2008 NOL” is defined as the taxpayer’s NOL for any tax year ending in 2008, or, at the taxpayer’s election, any tax year beginning in 2008. The election to extend the carryback period is irrevocable and can be made only with respect to one tax year.
Continue Reading...The Federal Reserve emphasized its newly donned role of the consumer protector on November 12, 2009 when it issued final revisions to Regulation E (the “Final Rule”) that will require many banks to revise their existing procedures for paying and disclosing consumer overdrafts that result from automated teller machine (“ATM”) and one-time debit card transactions. Banks are required to achieve full compliance with the Final Rule by July 1, 2010. For many banks, it is likely that full compliance will involve significant operational and processing changes, as well as the implementation of new procedures and new customer disclosures. These types of changes take time to implement, and so we recommend that banks act immediately to assess their overdraft protection services in light of the Final Rule, in order to determine what changes will be necessary to achieve timely compliance.
Today Senate Banking Committee Chairman Christopher Dodd and his Democratic Banking Committee colleagues released draft financial regulatory reform legislation. The new draft legislation comes as the House Financial Services Committee has yet to complete its markup of similar legislation. Today's released legislation outlines a process for the government to determine which financial companies are more stringently regulated, the regulations to be used and the inner workings with a newly created Agency for Financial Stability. Additionally, the legislation sets forth a process for winding down such financial companies. Both the Office of Thrift Supervision and Office of the Comptroller of the Currency would be eliminated under the bill and replaced by a single entity, the Financial Institutions Regulatory Administration.
Click here for the press release, click here for a summary of the draft legislation and click here for the actual draft legislation.
On October 30, 2009, all of the federal regulatory agencies issued a new policy statement on commercial real estate (“CRE”) loan workouts. The policy statement does offer opportunities for financial institutions (“FI”) to reduce the amount of charge-offs on CRE loans, return restructured loans to a performing status faster and generally work with customers on mutually beneficial workouts. Nonetheless, the policy statement does present challenges before FIs can achieve such results, especially for those management teams seeking to “kick the can down the road” to await better days. Notably, however, the policy statement does not change regulatory reporting guidelines or the accounting requirements under generally accepted accounting principles (“GAAP”).
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