Orrick's Financial Industry Week In Review

by Orrick, Herrington & Sutcliffe LLP
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Financial Industry Developments

Fed Proposes Implementing Section 622 of Dodd-Frank

On May 8, the Fed invited comment on a proposed rulemaking that would implement Section 622 of Dodd-Frank, which prohibits a financial company from combining with another company if the ratio of the resulting financial company's liabilities exceeds 10 percent of the aggregate consolidated liabilities of all financial companies.  Press Release

CFPB Proposes Rule to Promote More Effective Privacy Disclosures

On May 6, the CFPB proposed a rule to promote more effective privacy disclosures from financial institutions to their customers. The rule would allow companies that limit their consumer data-sharing and meet other requirements to post their annual privacy notices online rather than delivering them individually.  Press ReleaseProposed Rule.

FDIC Issues List of Banks Examined for CRA Compliance

On May 5, the FDIC issued its list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA).   Press Release

OCC Releases CRA Evaluations for 41 National Banks and Federal Savings Associations

On May 1, the OCC released a list of CRA performance evaluations that became public during the period of April 1, 2014 through April 30, 2014. Of the 41 evaluations made public this month, five are rated outstanding, 36 are rated satisfactory, none are rated needs to improve, and none are rated substantial noncompliancePress ReleaseEvaluations

CFTC Further Implements Trade Execution Requirement

On May 1, the CFTC's Division of Market Oversight (DMO) and Division of Clearing and Risk (DCR) announced the further implementation of the trade execution requirement for certain interest rate and credit default swaps.  Press Release

Rating Agency Developments

On May 8, Kroll released a research report discussing the housing sector impact on financial institutions. The April 2014 survey of Senior Loan Officers conducted by the Fed shows that reports of weaker demand outnumbered reports of stronger demand for each type of residential real estate loan, while the opposite pattern held for credit card and auto loans.  Kroll's Report.

On May 2, Moody's released its approach to rating transactions backed by portfolios of Hedge Fund InvestmentsMoody's Report.

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

Distressed Debt and Restructuring Developments

Bankruptcy Court Approves Detroit Disclosure Statement; Plan Goes to Creditors

On May 5, U.S. Bankruptcy Judge Steven Rhodes approved the City of Detroit's Disclosure Statement detailing its proposed Plan of Adjustment.  The Court authorized the City to begin the solicitation of votes on the Plan.  Confirmation hearings are scheduled for the second half of July.  Disclosure Statement

Court Approves Energy Future Holdings' Interim DIP Financing

After several days of "first day" hearing in the bankruptcy case of Energy Future Holdings Corp (formerly TXU), Bankruptcy Judge Christopher Sontchi in the District of Delaware Bankruptcy Court authorized the Debtors to move forward with their interim post-petition financing.  The Court permitted EFH to borrow $2.3 billion out of a $4.5 billion total financing package.  A hearing on the Final Order is set for June 5, 2014.  Interim Order.

Asset Management

SEC Issues Investor Alert Regarding Bitcoin and Other Virtual Currency Related Investments

On May 7, the SEC's Office of Investor Education and Advocacy issued an Investor Alert to make investors aware about the potential risks of investments involving Bitcoin and other forms of virtual currency.  Investor Alert

RMBS and Other Securities Litigation

California Court Refuses Equitable Tolling for RMBS Claims

A recent decision dismissing an RMBS lawsuit in the Los Angeles County Superior Court highlights the critical importance of filing your claims in the correct court whenever there is a jurisdictional issue.  By rejecting the plaintiff's equitable tolling arguments and applying the appropriate statutory limitations periods, the decision is notable because it arguably conflicts with similar decisions by other state courts involving similar RMBS claims.  Orrick has previously written about the application of statutes of limitations to RMBS claims, which may be viewed here.  For more information from our Securities Litigation blog, please click here.

U.S. Bank Wins Partial Dismissal of Investor Claims

On May 5, Judge Katherine Forrest of the U.S. District Court for the Southern District of New York granted U.S. Bank's motion to dismiss certain of the claims brought by the Policemen's Annuity and Benefit Fund of the City of Chicago and the Washington State Investment Board.  The suit relates to RMBS certificates backed by loans originated by Washington Mutual.  The court dismissed claims related to trusts for which no named plaintiff held certificates, or where the named plaintiff held certificates before U.S. Bank became the trustee.  Plaintiffs' claims on the other remaining 11 trusts will proceed.  Order.

NCUA RMBS Suit against Wachovia to Proceed

On May 6, Judge Denise Cote of the U.S. District Court for the Southern District of New York denied Wachovia Capital Markets' motion to dismiss claims brought by the National Credit Union Administration.  In the suit, NCUA alleges misstatements and omissions by Wachovia in offering documents used to sell RMBS to two credit unions.  The court held that the complaint sufficiently alleged that AmNet, the originator of the underlying mortgage loans, was concerned with origination volume and not the quality of the loans or the ability of the borrowers to repay.  The court cited allegations of poor performance of the certificates as support for NCUA's claims.  The court also held that loan-to-value ratios may constitute actionable statements of fact, and are not necessarily subjective opinions as to which liability can exist only upon a showing that the opinion was not believed to be true when made, because some are based on purchase price, rather than appraisal values.  NCUA had sufficiently pleaded significant deviations between the reported appraisal values and the actual values of the mortgaged properties.  Finally, the court held that misstated debt-to-income ratios were sufficiently pleaded when viewed in the context of plaintiff's other allegations, including alleged delinquency statistics.  Order.

European Financial Industry Developments

British Bankers' Association Publishes Updated Anti-bribery and Corruption Guidance

On May 6, the British Bankers' Association published updated guidance on its website relating to anti-bribery and corruption.  The document highlights key issues in meeting UK legal and regulatory requirements for preventing bribery and corruption.  Guidance.   

European Commission Decisions on Equivalence of Overseas Legal and Supervisory Frameworks Published

On May 6, implementing decisions of the European Commission were published in the Official Journal of the EU.  The European Commission has determined that the legal and supervisory frameworks for credit rating agencies in Argentina, Brazil, Hong Kong, Mexico and Singapore are equivalent to the requirements of the Regulation on Credit Rating Agencies (Regulation 1060/2009).  Decision.  

Council of the EU Adopts Bank Recovery and Resolution Directive

On May 6, the Council of the EU adopted at first reading the text of the Bank Recovery and Resolution Directive (BRRD).  The BRRD seeks to harmonize national legislation of Member States in relation to bank resolution and recovery.

Among other things, the BRRD will enable authorities to write down or convert into equity certain claims of shareholders and creditors of failing banks (bail-in).   Some liabilities will be permanently excluded from bail-in, including deposits below €100,000.

Member States will have until December 31, 2014, to implement the BRRD into national law.  Press ReleaseBRRD Text

Events

Orrick's Annual Financial Services Roundtable, June 11

Members of Orrick's Employment Law & Litigation Group invite you to join an interactive discussion of critical employment law issues impacting the financial services industry. Roundtable discussion topics include wage-and-hour cases impacting the financial services industry, employee background checks, update on EEOC and OFCCP enforcement initiatives for 2014 and the latest whistleblower law developments under federal and new California state law.  For more information and to register for this event, please click here

 

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.

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