Archive for September, 2010

Analyst: GM plans to sell shares on Nov. 18 (AP)

Thursday, September 2nd, 2010 | Finance News

DETROIT – General Motors plans to start trading shares again on Nov. 18, timing that allows the company one more quarter of earnings to build its case to investors, a firm that researches initial public offerings said Thursday.

Scott Sweet, the managing partner of IPO Boutique, said GM plans to price the shares on Nov. 17 and begin selling them the next day. He said the automaker wants to start a two-week a road show to drum up investor interest on Nov. 3, the day after the midterm congressional elections.

It's unclear if the IPO dates have been finalized. Two people with knowledge of the process say the automaker's board hasn't approved a date for the IPO but is expected to meet next week to discuss the issue. GM is in a "quiet period" before an IPO, so no one is authorized to discuss the process publicly.

The company filed paperwork for an initial public offering with federal regulators last month. GM spokeswoman Renee Rashid-Merem declined to comment Thursday on the timing of the IPO.

Sweet said his information comes from multiple people on Wall Street but declined to name them. He says the company hasn't yet established a price for the shares, but hopes to raise $15 to $20 billion with the initial public offering.

The timing could disappoint some Democrats who supported the government's $50 billion bailout of GM last year and wanted to point to a successful IPO before the elections. But one more quarter of earnings could help the automaker establish that it is healthy and capable of making sustained profits. GM earned $2.2 billion in the first half of 2010 despite depressed U.S. auto sales, but it lost $3.4 billion in the fourth quarter of last year.

GM also hopes the U.S. auto market sees some modest improvement this fall. On Wednesday it said its U.S. sales fell 5 percent from July and 11 percent from last August, when they were boosted by the Cash for Clunkers program.

Dan Akerson, who became GM's CEO on Wednesday, didn't mention the IPO in his first e-mail to employees Thursday. Akerson wished employees a happy Labor Day weekend and said he has already met with United Auto Workers President Bob King. Akerson said he is "from a union family" and believes "very deeply" in working together with the union.

"There will always be more hard work ahead of us, but because of your dedication, I have great optimism for GM's future," Akerson said in the e-mail obtained by The Associated Press.

Akerson took over from Ed Whitacre, who has resigned as CEO but will remain chairman of GM through the end of this year. Both men are former telecommunications executives appointed to GM's board by the federal government.

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Bernanke takes blame for muddled message on Lehman (Reuters)

Thursday, September 2nd, 2010 | Finance News

WASHINGTON (Reuters) – U.S. Federal Reserve Chairman Ben Bernanke said he was partly to blame for leaving the wrong impression that the central bank could have saved Lehman Brothers from failure in 2008.

Bernanke, testifying on Thursday before a congressional commission examining the causes of the worst financial crisis in 80 years, said he thought it "very likely" the investment bank was insolvent and lacked sufficient collateral to borrow enough from the central bank to avert collapse.

But he said he kept that view to himself in congressional testimony given just days after Lehman's September 2008 bankruptcy because he was worried that such comments might have spooked already panicky financial markets.

"I regret not being more straightforward there because clearly it has supported the mistaken impression that in fact we could have done something we could not have done," he said.

The Financial Crisis Inquiry Commission wrapped up a two-day session on Thursday focusing on "too big to fail" firms whose disorderly collapse could destabilize the global economy.

On Wednesday, commission Chairman Phil Angelides questioned whether politics had played a role in the decision not to bail out Lehman Brothers, citing emails showing U.S. officials fretting over how the media might portray a taxpayer-funded rescue of a Wall Street titan. Lehman's bankruptcy triggered widespread panic, hastening the worst global recession since World War Two.

"It was with great reluctance and sadness I conceded that there was no other option" but to let Lehman fail, Bernanke said. "The only way we could have saved Lehman would have been by breaking the law and I'm not sure I'm willing to accept those consequences for the Federal Reserve and for our system of laws."

The central bank serves as the lender of last resort for banks in financial difficulty, but it is required to lend against good collateral. Bernanke said it was the "unanimous opinion" of New York Fed lawyers and leadership that Lehman did not meet that requirement.

The financial crisis, which began with failing U.S. home mortgages, led to the bankruptcy, bailout or government-brokered buyout of large financial firms, including Bear Stearns, Lehman Brothers, Wachovia and Washington Mutual.

The costly bailouts have been hugely unpopular with voters, and many politicians are still paying the price with as November congressional elections near.

The 10-member, congressionally-appointed commission is due to issue its report on the causes of financial crisis by December 15.

BREAKING UP HARD TO DO

Bernanke said a freshly minted financial reform law would help reduce the risk of future problems, provided regulators follow through on its implementation.

He listed stricter capital and liquidity rules, a regime to wind down a failing firm in an orderly fashion, and requirements that most derivatives are to be settled in clearinghouses, as among the measures that will strengthen the financial system and help address the too-big-to-fail problem.

Federal Deposit Insurance Corp Chairman Sheila Bair, who heads the agency that protects depositors in failed banks, said regulators play a vital role in ensuring the newly enacted reforms are successful.

"If implementation is not properly carried out, the reforms could be ineffective in preventing future crises or containing financial market disruptions should they occur," she said.

One of the new rules requires large financial companies to produce "living will" plans for how they could be safely dismantled if necessary. Bair said if those plans are not deemed credible, regulators can break them up.

"The government would be authorized to break up the institution so that it no longer creates undue risk to the financial system," she said in written testimony.

Breaking up banks that fail to produce credible resolution plans was a last resort that would only be taken if, over two years, firms ignore other entreaties to produce a credible plan. Before breaking up a firm, Bair said regulators could impose stricter requirements for capital, liquidity and leverage.

TRANSATLANTIC TIFF?

Bair also took aim at critics who say the struggling economy is reason to postpone new capital requirements, including those now being worked out as part of international negotiations known as Basel III.

The aim is to establish global standards on how much and what type of capital banks must hold as a cushion against potential losses. The financial crisis exposed shortcomings in existing capital rules, and the United States has pushed hard for stricter requirements.

However, many banks have argued that raising the requirement before the economic recovery is assured might constrain lending and choke off growth, and some officials -- particularly in Europe -- have called for a slower phase-in.

Bair acknowledged that meeting the stricter requirements will not be easy for banks, but said this was "no excuse for repeating the mistakes of the past when it comes to responsible capital requirements."

When asked during her testimony about which countries were pushing back against quick implementation of tougher Basel requirements, she said those discussions were "confidential."

Commissioner Keith Hennessey, a former White House economic adviser, pressed her to at least specify which continent the pushback was coming from, alluding to media reports that some European officials had pushed for delaying implementation.

"I wouldn't dispute the public reports, let's put it that way," she said.

(Reporting by Mark Felsenthal and Dave Clarke; Writing by Emily Kaiser; Editing by Tim Dobbyn)

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Con man could get life under Calif. 3-strikes law (AP)

Thursday, September 2nd, 2010 | Finance News

LOS ANGELES – A man accused of bilking elderly South Los Angeles residents out of their homes in a foreclosure scam is facing a potential life sentence in a rare use of California's three-strikes law for a white-collar crime.

Timothy Barnett is charged with 23 felonies, including identity theft, real estate fraud and theft from the elderly. He was arrested in April and has pleaded not guilty.

A conviction would be the 47-year-old's third felony strike after two 1997 burglary convictions stemming from fraud schemes in which he met the victims at their homes. A judge, however, must decide whether to permit Barnett's prosecution under a third-strike sentencing enhancement.

Los Angeles County prosecutors call him an incorrigible con man who deserves to face 25 years to life if he's convicted.

"He has an almost magical ability to install confidence in people. He is a great menace to the community," Max Huntsman, who supervises the real estate fraud section of the county district attorney's office, told The Associated Press on Thursday.

But critics are questioning whether it's a proper use of the law that voters passed in 1994.

"I've never heard of such a case," said Stan Goldman, a Loyola Law School professor who is an outspoken opponent of the three-strikes law.

"This law was intended to deal with serious and violent felons and lock them up forever," Goldman told the Los Angeles Times. "If this guy's guilty, he's a pretty despicable and dangerous character. But he hasn't killed anybody."

There have been repeated calls to reform the three-strikes law, which permits someone convicted of two serious felonies to face a possible life sentence if convicted of a third felony of any type. In 2004, California voters rejected Proposition 66, which would have amended the law by requiring the third strike to be a violent or serious felony, among other things.

Last month, a judge freed a man who spent 13 years in prison after trying to steal food from a Los Angeles church. Gregory Taylor, 47, was convicted of a third-strike of burglary and had two previous robbery convictions.

In 1995, a Compton man and convicted robber named Jerry Dewayne Williams was sentenced to 25 years to life under the law after he snatched a slice of pizza from some children in Redondo Beach. The sentence was later reduced and he was freed in 1997.

The U.S. Supreme Court twice decided that the three-strikes law doesn't violate constitutional bans on cruel and unusual punishment.

Prosecutors contend Barnett tricked five people who thought they were refinancing delinquent mortgages into selling their homes to him for a fraction of their value. He remained jailed Thursday on $2.2 million bail pending a Sept. 10 pretrial hearing.

Barnett, who had a $3.1 million home and three Mercedes-Benz cars, did nothing wrong, his attorney says.

Through his Buena Park company, Barnett offered to buy the homes of delinquent owners, often gave them cash sums, leased back the property to them at much lower monthly rates and offered them the chance to buy back the property in two or three years, Winston Kevin McKesson said.

"The real villains in this case are the alleged victims" who bought the homes, built up equity and then used it to live beyond their means, McKesson told the AP.

The people accusing Barnett of fraud knowingly signed sales contracts and then reneged on the agreements, the attorney said.

McKesson also said he didn't believe the three-strikes law was intended to cover his client's case.

"No one's physical safety was at risk," he said.

Huntsman said the allegations against Barnett warrant a potential life sentence.

"I think what he does is so horrible that it's much worse than many strikes," Huntsman said. "A terrorist threat, an ADW (assault with a deadly weapon), a person hits somebody with a stick, might do less damage than what this man does.

"He destroys lives. He targets elderly people whose wealth, accumulated over a lifetime of work, is their home."

The district attorney's office has a policy of not automatically seeking third-strike sentencing enhancements if the alleged felony isn't serious or violent, because judges often reject the option, Huntsman said.

However, the charges against Barnett include two counts of burglary, which under the law qualify as serious felonies.

"When you enter somebody's home and commit crimes, that's a very dangerous situation that you're creating because people often get violent when defending their home," Huntsman said.

McKesson said a judge had thrown out the burglary charges and the prosecution reinstated them. He said he intends to ask for dismissal of all charges at an upcoming hearing.

Barnett spent nearly five years in state prison after his 1997 burglary convictions.

The victims in the latest case were mostly older residents of South Los Angeles, prosecutors said.

Eddie F. Baker Jr. said Barnett rang his doorbell in 2005 and said he had a plan to help the 72-year-old avoid foreclosure.

"He was telling me that he was a member of the church and that he was a man of God and I was a man of God. So we kind of had a relationship. I trusted him," Baker testified at Barnett's preliminary hearing.

"He told me he could help me get my life in order. I could pay all my bills and get my house back and get an A-1 credit rating," Baker said.

Instead, Baker said he unwittingly had granted Barnett title to the home he had owned since 1969.

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