Credit Enhancement Firms

Federal Regulators Just Sued JPMorgan And RBS For Lying To Investors

The offering documents that RBS and JPMorgan gave to investors, specifically credit unions, contained "untrue statements of material fact," or "omitted to state material facts" in violation of state and federal securities laws, says a new lawsuit filed against the firms by the National Credit Union Administration.

The NCUA seeks $565 million from RBS and $278 from JPMorgan. The lawsuits are available for download here . We're going through them right now and let you know what they're all about soon.

At first glance, the lawsuit seems to take issue with one of the underlying aspects of the mortgage crisis, that ratings agencies used "credit enhancement" to give shoddy mortgages high ratings. The NCUA was not aware of the credit enhancement.

Here's one key sentence from the lawsuit against JPMorgan:

If the Credit Unions had known about the Originators’ pervasive disregard of underwriting standards— contrary to the representations in the Offering Documents—the Credit Unions would not have purchased the certificates.

They plan to file similar lawsuits against 5-10 banks in the coming weeks, a spokesman told the WSJ . The lawsuit against JPMorgan cites the recently released paper written by the Permanent Subcommittee on Investigations in the US on the causes of the Financial Crisis, which is interesting because others might stem from the report.

But as we're reading this, it seems like the NCUA is suing the firms for exposing them to the financial crisis. It might be hard to prove wrong doing in that case, but we'll keep reading and let you know if we find anything else.

Bonds of infra debt funds may witness slow take-off | Banking News ...

With the guidelines on infrastructure debt funds now in place, market participants expect these funds to be launched this financial year. However, they say raising funds through the shallow Indian bond market could be a challenge.

Infrastructure debt funds were introduced to accelerate and increase the flow of long-term funding to infrastructure projects in India at lower interest rates. This, however, may not be easy.

According to the regulations, non-banking finance companies that float infrastructure funds are allowed to raise funds through the sale of bonds, with a maturity period of not less than five years. Currently, the only investors in long-term debts are insurance companies and pension funds. Both these entities would have to await regulatory approvals to start investing in infrastructure debt funds.

According to the Insurance Regulatory and Development Authority (Irda) norms, it is mandatory for insurance companies to direct 15 per cent of their investments towards infrastructure. “If allowed, it would open up new avenues for investing,” said the head (fixed income) of an insurance company. But investing in these instruments would depend largely on the pricing of these bonds, he said.

The guidelines also permit the sale of bonds with maturity periods of five years or above, abroad. “Typically, foreign investors park their funds in one-three years maturity brackets only,” said a bond dealer with a domestic brokerage firm.

Foreign institutional investors (FIIs) can invest up to $25 billion in corporate bonds issued by infrastructure companies, with residual maturity of five years. The FIIs can trade among themselves during the lock-in period of three years. Investment limits and the definition of infrastructure companies would have to be modified to augment the overseas fund flow, the dealer said.

The bond market in India is currently dominated by high rated papers. According to norms, the credit risks associated with the underlying projects would be borne by infrastructure debt funds. “Bonds issued by infrastructure debt funds would have to compete with ‘AAA’ rated papers of public sector units, as well as private sector companies,” said the dealer.

Currently, bonds are issued by infrastructure finance companies like Rural Electrification Corporation, Power Finance Corporation and Indian Railways Finance Corporation to fund infrastructure projects in India. In line with the detailed norms, the credit enhancement of infrastructure debt funds to ‘AA’ level is feasible, said a finance ministry release.

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