Orrick's Financial Industry Week in Review - April 14, 2014

by Orrick, Herrington & Sutcliffe LLP
Contact

Financial Industry Developments

Agencies Apply Increased Leverage Ratio to Large U.S. Banks

On April 8, the Fed, FDIC and OCC adopted the final rule to increase the leverage ratio for the largest U.S. banks.  The final rule applies to U.S. bank holding companies with more than US$700 billion in consolidated total assets or more than US$10 trillion in assets under custody and their insured depository institution subsidiaries.  Covered banking organizations must maintain a leverage buffer of 5 percent.  Insured depository institution subsidiaries must maintain 6 percent leverage ratio.  The final rule has the effective date of January 1, 2018.   FDIC Press Release.  Fed Press ReleaseFDIC Rule.   

Agencies Issue Supplementary Leverage Ratio Proposed Rule

On April 8, the Fed, FDIC and OCC issued notice of proposed rulemaking that would modify the denominator calculation for the supplementary leverage ratio in compliance with the Basel Committee on Banking Supervision agreements.  The revisions will apply to all internationally active banking organizations.  Comments must be submitted by June 13, 2014FDIC Press ReleaseFed Press ReleaseFDIC Rule.   

Fed Gives Two-Year Extension to Banks to Conform to Certain Aspects of the Volker Rule

On April 7, the Fed announced that it intends to give banking entities two additional one-year extensions to conform their ownership interests in and sponsorship of certain collateralized loan obligations to the Volker Rule.  The Fed previously extended the deadline for all activities and investments by one year to July 21, 2015.  The Fed intends to grant banking entities two additional one-year extensions, which together would extend until July 21, 2017Fed ReleaseFed Statement.  

SEC Launches Cooperation Initiative to Encourage Municipal Issuers and Underwriters to Self-Report Continuing Disclosure Violations

On March 10, the SEC announced that issuers and underwriters of municipal securities may voluntarily report materially inaccurate statements made in offering documents regarding prior continuing disclosure compliance through a program called the Municipalities Continuing Disclosure Cooperation Initiative (the MCDC Initiative).  Orrick covered the topic extensively in a recent client alert.  

Rating Agency Developments

On April 10, Moody's released its methodology for rating for privately-financed public infrastructure projectsMoody's Report.

Note: Free registration is required for rating agency releases and reports.

Distressed Debt and Restructuring Developments

Bankruptcy Judge Approves Detroit Swaps Deal with Banks; Detroit Reaches Settlement with Bond Insurers

On April 11, Bankruptcy Judge Stephen Rhodes approved a proposed US$85 million settlement with banks that were counterparties to a disputed US$286 million swap with the City of Detroit.  The Judge had previously rejected prior settlements at US$230 million and US$165 million in December and January respectively.  In his statements from the bench approving the revised settlement, Judge Rhodes expressly stated that he believed a cramdown plan could be approved as a result of this settlement.  Cramdown in bankruptcy requires, among other things, one impaired consenting class of creditors, and the Judge's statement suggests that he believes the swap counterparties suffice to satisfy this standard.  The court has not yet submitted a written order.

Earlier last week, mediators in the Detroit bankruptcy (including Chief District Court Judge Rosen) announced that the City and three monoline insurers (National Public Finance Guarantee Corp., Ambac Assurance Corp. and Assured Guaranty Municipal Corp.) had reached a deal to settle claims regarding US$388 million in unlimited tax general obligations bonds.  The parties agreed to reinstate 74 percent of the GO bonds for the benefit of the lenders.  The proposed plan will designate the remaining 26 percent of the relevant bonds for the benefit of certain pension beneficiaries.  The monolines agreed to keep the current insurance policies outstanding around these GO bonds.  The City also agreed to include in their proposed confirmation order approving the plan, findings that the tax millage pledged to repay these bonds constitutes a "special revenue" under section 902 of the Bankruptcy Code and that such amounts be subject to a statutory lien.  The city also agreed that the new bonds will be secured by a fourth lien on distributable state aid going forward.

The net effect of these settlements could be to advance the city toward a proposed plan of restructuring.  The pressure of a potential cramdown could move other parties to reach settlements with respect to their claims in advance of confirmation hearings slated for mid-to-late July.  Audio of RulingStatement.

RMBS and Other Securities Litigation

Citigroup Announces Settlement of Repurchase Claims

On April 7, Citigroup announced an agreement to settle repurchase claims brought by 18 institutional investors in 68 RMBS trusts for US$1.13 billion.  The settlement covers US$59.4 billion in RMBS transactions issued between 2005 and 2008.  The settlement agreement is subject to approval by the trustees for the RMBS trusts and does not cover potential regulatory actions or claims for misstatements in securities offering documents.  Press Release.    

FHFA Repurchase Suit Against DB Structured Products Dismissed

On April 10, Justice Bransten of the Supreme Court of the State of New York dismissed the Federal Housing Finance Agency's US$1.4 billion suit against Deutsche Bank Structured Products.  FHFA initially filed the suit on behalf of Freddie Mac as a certificateholder for breach of contract in connection with repurchase claims.  After the six-year limitations period on breach of contract claims expired, the trustee joined the action.  The court held that FHFA lacked standing to enforce the contractual repurchase remedy and dismissed the claims as time-barred under the December 2013 decision of the First Department in ACEOrder.   

Federal Court Dismisses Repurchase Suit Against Citigroup in Part

On March 31, Judge George B. Daniels of the United States District Court for the Southern District of New York partially dismissed a repurchase suit against Citigroup.  The plaintiff-trust alleges breaches of representations and warranties in connection with an April 2007 securitization of a pool of 4,946 residential mortgage loans.  The court dismissed the claims as to loans that the trustee had not requested Citigroup repurchase before bringing suit and dismissed plaintiff's claim for damages as barred by the contractual sole remedy provision.  The court declined to dismiss plaintiff's breach of contract claims as time-barred, holding that they accrued on the Closing Date of the transaction, and were brought within six years of that date.  The court also denied Citigroup's motion to dismiss plaintiff's claim for indemnification.  Order.   

Trustee Repurchase Suit Against GreenPoint To Proceed

On March 31, Judge Andrew Carter of the United States District Court for the Southern District of New York denied Greenpoint's motion to dismiss the complaint filed by trustee U.S. Bank National Association.  The court held that the accrual provision in the Mortgage Loan Purchase Agreement could not extend the statute of limitations, but nonetheless held that the trustee's claims were timely because they were brought within six years of the Closing Date of the transaction.  The court denied GreenPoint's motion to dismiss the trustee's claim for indemnification, rejecting the argument that the indemnity was limited to third party claims.  The court also declined to dismiss the complaint for failure to provide adequate notice of breaches, concluding that this raised factual issues.  Order.   

Allstate and Merrill Lynch Agree to End RMBS Suit

On April 8, Allstate Insurance Company and Merrill Lynch & Co. filed a stipulation to discontinue a suit for more than US$167.4 million in residential mortgage backed securities.  Allstate filed suit in 2011 in the Supreme Court for the State of New York, alleging fraud by Merrill Lynch in the sale of the securities to Allstate.  It alleged misstatements in offering documents related to underwriting guidelines, due diligence, owner occupancy, loan-to-value ratios, exceptions, credit ratings, and credit enhancement features.  Allstate had brought claims under New York law for fraud, fraudulent inducement, and negligent misrepresentation and claims for alleged violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933.  Stipulated DiscontinuanceComplaint.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Orrick, Herrington & Sutcliffe LLP | Attorney Advertising

Written by:

Orrick, Herrington & Sutcliffe LLP
Contact
more
less

Orrick, Herrington & Sutcliffe LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.