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« Goldman Reaches Foreclosure Settlement With The FED & NY Regulators Calling For 25% Loan Forgiveness | Main | Nevada AG Wallops Bank Of America With Sweeping Lawsuit, Nationwide Foreclosure Settlement In Peril »
Thursday
Sep012011

Chris Whalen Recommends Chapter 11 Bankruptcy For Bank Of America: Default And Liquidation Under Dodd-Frank

Chris Whalen - Institutional Risk Analytics

A not so fictional FSOC memo for Bank of America

Default and Liquidation under Dodd-Frank

Under the provisions of the Dodd-Frank legislation, the FSOC may appoint the FDIC as receiver if the Secretary determines any covered company "is in default or in danger of default," but the FSOC does not need to act if there are alternatives. It is clear from both the provisions of Dodd-Frank and the Congressional record that a private solution ought be the first choice.

In view of the fact that the subsidiary banks of BAC are still book solvent and that the primary issue facing BAC arises from the legacy liabilities of the parent, and not of the subsidiary banks and broker dealer, our recommendation is a commercial Chapter 11 reorganization under the federal bankruptcy code, with the full acquiescence and cooperation of the FDIC, other regulators and the banking industry.

A commercial alternative will be modeled after examples such as Lehman Brothers and more specifically MCorp, when a parent BHC reorganized while the subsidiary banks remained open. A commercial reorganization will allow the management of BAC to work with creditors to resolve the legacy liabilities of the parent, and also sell assets, in a fair, deliberate and timely fashion without disrupting the operations of the subsidiaries of BAC. Such a solution meets the convenience and need of the public, and also minimizes the risk of a loss of the FDIC's insurance fund.

The depositors of the subsidiary banks of BAC and, indirectly, the FDIC, are senior to all of the creditors of the parent BAC. In a Dodd-Frank resolution, the equity and debt holders of the parent can take a near-total loss, especially in view of the large magnitude of unliquidated claims against the parent.

But in a commercial reorganization under Chapter 11, the creditors will become the new shareholders of the parent BHC. A modest conversion of debt to equity, combined with an equitable settlement of all unliquidated claims, will leave a restructured BAC solvent, profitable and able to support new leverage. From both a public good and creditor perspective, a voluntary reorganization is the first and best option for BAC and not a Dodd-Frank resolution.

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Reader Comments (6)

Or nationalization!!! I want a public option bank!
Sep 1, 2011 at 3:34 PM | Unregistered CommenterJack Lohman
"A commercial reorganization will allow the management of BAC to work with creditors to resolve the legacy liabilities of the parent, and also sell assets, in a fair, deliberate and timely fashion without disrupting the operations of the subsidiaries of BAC. Such a solution meets the convenience and need of the public, and also minimizes the risk of a loss of the FDIC's insurance fund."

That is almost comical, kick management to the curb and let the chips fall where they may, F###ing crooks!
Sep 1, 2011 at 4:16 PM | Unregistered CommenterS. Gompers
In Norway, there was a housing bobble, late 80 and early 90, where the plumnghe was about 50%, at leats it seemd so.
What the gov, did was like the article describes.
They simply grabbed the bank, nationalised it, sheerholders lost the moust of it, and drowe it back in bissenisse(prime base, housing and industry, not casino), sold it and made hugh amount of money, its to day a halfway privat and gov. runn, if my memory is correct.
Some of us got a wake up cal, those years, and have since then taken that in acount. Always prepere for the worstcase senario. Intress can jump up or down considerably(10&) in a course of a cupple of decades.

Thats why the Bobble in the housing marked in the USA was so fu.. obvious. The biggest difference from the Bobble in Norway is the Fraud(MBS its like a B-film cripture on a confilm) aspect, because that alone has viden the scope on this bobble to unnesesery hights and costs.
Sep 1, 2011 at 6:43 PM | Unregistered Commentermikael
Note that the last paragraph states that FDIC losses will be "minimized." If the negotiation of claims are left to BAC management and the creditors, it can be predicted that losses to the FDIC will be maximized. A better solution would be to make the FDIC the receiver, remove existing management and replace it wthl civil servants on the civil service salary scale.
Sep 1, 2011 at 6:55 PM | Unregistered CommenterRobert J Molineaux, Sr.
why cant we have state owned banks that buy all legitimate loans and rewrite them at 2%.
the interest generated from this alone would be enough to eliminate all other taxes.
then charge these scoundrels with treason and use rico laws to confiscate everything they have.
federal reserve is ful of fraudulent treasonous scum who have been sucking americans dry for 100 years.

and if everyone had loans at 2% business would boom, because everyone would have money to spend again
Sep 1, 2011 at 7:13 PM | Unregistered Commenterrxgary
http://www.youtube.com/watch?v=XTVl5CegLTg&feature=feedu

Las Vegas commercial real estate wasteland...
Sep 1, 2011 at 9:45 PM | Registered CommenterDailyBail

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