Archive for September, 2010

Judge refuses to dismiss AIG class-action lawsuit

Monday, September 27th, 2010 | Finance News

NEW YORK (Reuters) – A federal judge on Monday refused to dismiss a class-action lawsuit accusing American International Group Inc (AIG.N) of misleading investors about its exposure to subprime mortgages, which led to a liquidity crisis and $182.3 billion of federal bailouts.

U.S. District Judge Laura Taylor Swain said the plaintiffs alleged facts "giving rise to a strong inference of fraudulent intent" in how AIG communicated publicly about the risks in its portfolio of credit default swaps.

The lawsuit covers investors who owned AIG securities between March 16, 2006, and September 16, 2008, when AIG received its first bailout.

AIG did not immediately return a call seeking a comment.

Shares of AIG rose $1.72, or 4.7 percent, to $38.19 in morning trading on the New York Stock Exchange.

The case is In re: American International Group Inc 2008 Securities Litigation, U.S. District Court, Southern District of New York, No. 08-05072.

(Reporting by Jonathan Stempel in New York, editing by Maureen Bavdek)

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IMF cuts 2011 growth forecast to 2.0%

Monday, September 27th, 2010 | Finance News

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LONDON (AFP) – The International Monetary Fund said on Monday that the nation's economy "is on the mend" but it cut its 2011 growth forecast for the country to 2.0 percent from its previous estimate of 2.1 percent.

"Our central scenario envisages real GDP growth of two percent in 2011, rising gradually to 2.5 percent in the medium term," the IMF said in an update.

In July, the IMF forecast gross domestic product growth of 2.1 percent for 2011.

"The UK economy is on the mend. Economic recovery is underway, unemployment has stabilized and financial sector health has improved," it said in its latest report on Britain.

"The government's strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability. The plan greatly reduces the risk of a costly loss of confidence in public finances and supports a balanced recovery.

"Fiscal tightening will dampen short-term growth but not stop it as other sectors of the economy emerge as drivers of recovery, supported by continued monetary stimulus."

The coalition government has embarked on slashing a record deficit in a bid to cement the country's recovery from recession.

Recent data showed government borrowing worsened unexpectedly in August to hit a record high for the month as the Conservative-Liberal Democrat alliance prepares a draconian crackdown on public spending.

"With record-high budget deficits, credible fiscal tightening is essential to preserve confidence in debt sustainability and regain fiscal space to cope with future shocks," said the IMF.

"The consolidation plan and implementation of early measures to tackle the deficit -- one of the highest in the world in 2010 -- greatly reduces the risk of a costly loss of confidence in fiscal sustainability and will help rebalance the economy.

"These benefits outweigh the expected costs in terms of adverse effects on near-term growth."

The coalition, led by Prime Minister David Cameron's Conservatives, inherited a record 154.7-billion-pound deficit from the previous Labour administration which it ousted at a general election in May.

In June, Chancellor of the Exchequer George Osborne delivered a deficit-slashing emergency budget amid intense concern about sky-high debt levels in Europe.

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Bank regulators delay move on liquidation power

Monday, September 27th, 2010 | Finance News

WASHINGTON (Reuters) – Banking regulators on Monday said they are delaying a proposal that would begin putting into place how the government would use its new authority to dismantle large, collapsing financial companies.

The staff of the Federal Deposit Insurance Corp said it is slowing down the proposal, one of the main elements of the recently passed financial reform law, to give other regulators and the industry more time to review it.

The FDIC board on Monday will instead be briefed by staff on issues related to the new authority and it will likely vote in early 2011 on a proposal to seek comment on specific issues.

The FDIC was considering voting on Monday on issuing an interim final rule that would have put in place some aspects of how the agency would handle the winding down of large financial firms.

Regulators who sit on the new Financial Stability Oversight Council asked the FDIC to give them more time to weigh in on the issue, an FDIC official said. The council will meet for the first time on October 1.

"Some members of the FSOC had really not had time to look it over," the official said.

Under the law, the government would designate certain financial companies as systemically important. That means the collapse of one of those companies could threaten the financial system. The FDIC has the power to seize and break them up if they are heading toward collapse.

The FDIC is charged with liquidating these institutions much as it does with banks that take deposits.

The new authority is part of an effort to end the notion that certain institutions are "too big to fail."

The lack of such a mechanism forced the U.S. government to treat shaky financial giants on an ad hoc basis during the crisis -- crafting massive bailouts for companies such as AIG (AIG.N), while letting Lehman Brothers (LEHMQ.PK) collapse.

As part of this new authority, large financial institutions must write living wills that regulators would use to dismantle them if they became insolvent.

The law allows the FDIC to move certain parts of failing institutions' business into a separate entity so that they can be sold at a later date.

An FDIC official said on Monday the agency staff has decided that subordinated debt, long-term bondholders and shareholders should not be allowed to be moved into this entity. The official said the agency hoped this would further the idea that the era of "too big to fail" is over.

At a forum on the issue last month, financial representatives raised concerns about how creditors would be treated during a liquidation.

On a separate issue, the agency will also vote on Monday on a final rule that would give federal protection to securitizations backed by home loans and other consumer debt if they meet higher standards and banks retain some of the risk associated with the products.

The securitization measure is designed to help boost a market that virtually froze during the financial crisis by giving investors confidence that the financial products are sound.

Under the proposal, The FDIC would provide banks with "safe harbor" protection for securitization if banks met higher loan origination standards and retained 5 percent ownership interests in the loans.

It would also require more disclosure of the underlying loans and long-term pay for the credit rating agencies rating the asset-backed securities.

(Reporting by Dave Clarke; Editing by Andrea Ricci, Dave Zimmerman)

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