Orrick's Financial Industry Week in Review

by Orrick, Herrington & Sutcliffe LLP

Financial Industry Developments

Fannie Mae and Freddie Mac Stress Tests Released

On April 30, FHFA released a report providing updated information on possible ranges of future financial results of Fannie Mae and Freddie Mac under specified scenarios.  The tests are designed to determine whether Fannie Mae and Freddie Mac could absorb losses as a result of adverse economic conditionsPress ReleaseReport.    

Bank of America to Resubmit its Capital Plan

On April 28, the Fed announced that it is requiring Bank of America Corporation to resubmit its capital plan and to suspend planned dividends.  The decision relates to the disclosure by Bank of America that it incorrectly reported data used in the calculation of regulatory capital ratiosPress Release.    

OCC Proposes Increase in Assessments for National Banks and Federal Savings Associations

On April 28, the OCC issued a proposed rule to raise assessments on national banks and federal savings associations with total assets over US$40 billion.  Under the proposal, the marginal assessment rate would increase by 14.5% beginning September 30, 2014 for covered institutions.  Comments on the proposal are requested by June 12, 2014Press ReleaseProposed Rule.  

Rating Agency Developments

On May 2, Fitch released its methodology for rating CMBS in Asia-PacificFitch Report.

On May 2, Fitch released its criteria for rating state revolving fund programs and similar municipal loan poolsFitch Report.

On May 2, Moody's released its methodology for rating transactions backed by portfolios of hedge fund investmentsMoody's Report.

On April 30, Moody's released its methodology for rating companies in the global integrated oil and gas industryMoody's Report.

On April 30, Fitch released its master methodology for developing and managing criteria and modelsFitch Report.

On April 30, S&P published commentary that addresses questions surrounding the future role of securitizations in the peer-to-peer (P2P) lending market and why there are some hurdles that will need to be cleared before they assign ratings to such transactions.  Commentary.

On April 29, S&P issued an advance notice of proposed rulemaking for changing the criteria for rating covered bonds.  The request for comments is expected to be published in the near future.  Release.

On April 28, Moody's released its methodology for rating US bond anticipation notesMoody's Report.

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

Distressed Debt and Restructuring Developments

Oregon Bankruptcy Court Denies Administrative Priority Status to Potential DIP Lender for Breakup Fee Claim

On April 28, the United States Bankruptcy Court for the District of Oregon found that a potential DIP lender's claim against the debtor did not constitute an administrative expense claim.  The claim arose from a breakup fee for proposed DIP financing after the debtor selected an alternative DIP lender.  The court denied the potential DIP lender's request for an administrative claim because (i) the breakup fee did not arise from a transaction with a debtor in possession and (ii) the potential DIP lender did not provide a direct and substantial benefit to the estate.  If the Court's opinion were to gain acceptance beyond this case, it could chill prepetition offers to serve as new DIP lenders, or possibly even affect the market for stalking horse bidders in a section 363 sale.  In re C&K Market, Inc., No. 13-64561-fra11 (Bankr. D. Or. Apr. 8, 2014) [Dkt. No. 786].  Client Alert.  

RMBS and Other Securities Litigation

First Horizon Reaches US$110 Million Settlement with FHFA

First Horizon National Corporation agreed to pay FHFA US$110 million dollars to settle a suit brought in New York federal court alleging that it misrepresented the quality of over US$180 billion in mortgage-backed securities sold to Fannie Mae and Freddie Mac between 2005 and 2007.  The settlement resolves claims against several First Horizon affiliates as well as three former First Horizon executives for alleged violations of both federal and District of Columbia securities laws.  Fannie Mae will receive US$61.6 million and Freddie Mac will receive US$48.4 million.  Under the terms of the settlement, First Horizon admits no liability or wrongdoing.  Press Release.  

European Financial Industry Developments

EU-wide Stress Testing of Banking Sector

On April 29, the European Banking Authority (EBA) published its methodology and adverse macroeconomic scenario (dated April 17) for the 2014 EU-wide stress test.  It also published scenarios relating to market risk and securitization.

The test is designed to assess banks' resilience to hypothetical external shocks, identify remaining vulnerabilities in the EU banking sector and provide a high level of transparency into EU banks' exposures.  The EBA's accompanying press release outlines the key features of the methodology and the scenario.  The common methodology underlying the assumptions cover a wide range of risks including credit and market risks, exposures towards securitization, sovereign and funding risks.

The EBA's FAQs provide a useful reference for the stress tests.  MethodologyScenarioMarket RiskSecuritizationPress ReleaseFAQs.    

Further Charges in LIBOR Investigation

On April 28, the Serious Fraud Office (SFO) published a press release announcing that three former employees of Barclays Bank plc have been charged with offenses of conspiracy to defraud in connection with the SFO's investigation into the manipulation of the London Interbank Offered Rate.  Press Release.    

European Parliament's First Reading of MiFID II Directive

The Council of the EU published an information note dated April 22 from the General Secretariat of the Council to the Permanent Representatives Committee and the Council concerning the outcome of the European Parliament's first reading of the proposed MiFID II Directive.  On April 15, the Parliament voted in plenary to adopt the MiFID II Directive at first reading, together with MiFIR.  The note states that the Parliament's first reading position affects what had been previously agreed upon between the institutions, and that the Council should therefore be in a position to approve the Parliament's position.  The MiFID II Directive can then be formally adopted in the wording corresponding to the Parliament's position.  Note.   

FCA Updates AIFMD Web Page

The Financial Conduct Authority (FCA) has updated its "latest news" Web page on the Alternative Investment Fund Managers Directive (AIFMD) with additional information relating to authorization applications made by firms managing alternative investment funds during the one-year transitional period ending on July 22, 2014.  Web Page.  


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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