FDIC Report: More Bank Failures Coming?: The FDIC’s Quarterly Banking Profile for the third quarter 2008 (here), released on November 25, 2008, paints a dismal picture of the banking industry.
Among other things, the Report notes that during the third quarter the number of insured institutions on the FDIC’s "Problem List" increased from 117 to 171, and the net assets of "problem" institutions rose from $78.3 billion to $115.6 billion. This represents the first time since the middle of 1994 that assets of "problem" institutions have exceeded $100 billion.
These grim statistics suggest further bank failures ahead. A November 25, 2008 CFO.com article discussing the FDIC’s report (here) quotes FDIC chairperson Sheila Bair as saying "we expect more banks to fail."
In its November 25 press release (here), the FDIC also notes that "community banks – those with total assets of under $1 billion – are beginning to exhibit stresses similar to those facing the industry as a whole." However, the press release also comments that "capital levels and reliance on retail deposits remain higher at those banks than the industry average."
My recent post detailing the latest bank failures and possible implications can be found here. My earlier post addressing the possibility of a new wave of "dead bank" litigation can be found here.
Big FCPA Penalties Ahead: According to statements reported in a November 25, 2008 Law.com article (here), the SEC’s deputy enforcement division director expects the imposition in the next two to six months of Foreign Corrupt Practices Act (FCPA) penalties that will "dwarf the disgorgement and penalty amounts that have been obtained in prior cases."
The biggest FCPA penalty to date is the $44.1 million settlement Baker Hughes paid last year to settle charges of bribery and other improper conduct in six countries (about which refer here).
One probe attracting particularly attention is the investigation involving Siemens, which in 2006 disclosed that it had uncovered more than $1 billion in bribes paid in over a dozen countries in order to win contracts. The potential magnitude of this fines and penalties Siemens could be facing may be inferred from Siemens’ recent 1 billion euro provision for the expected settlement with U.S. and German authorities of bribery allegations (about which refer here).
A "twist" noted with respect to the forthcoming cases is that a "significant" number involve violations that were not self-reported by the companies. In the recent past, many of the FCPA enforcement cases have arisen when companies themselves discovered and reported violations. However, many of the newer cases "were generated by other leads," such as the SEC’s own investigatory work or whisteblowers.
As I have noted in prior posts (most recently here), one of the risks increasingly associated with FCPA enforcement actions is the threat of follow-on civil litigation. For example, Siemens itself is the subject of a purported shareholders’ derivative suit in the U.S. related to its ongoing bribery investigations. As the scale of FCPA enforcement activity grows, the threat of FCPA-related civil litigation will also increase.
Litigation Funding Developments: In a November 2008 report on Transatlantic Trends in Business and Litigation (here), the Lloyd’s insurance market, among other things, examines the growing prevalence of third-party litigation funding, whereby investors financially support a claimant in return for a share of the damages. (My recent post discussing the role of litigation funding in the Australian class action against Centro Properties can be found here.)
The Lloyd’s report concludes that businesses on both sides of the Atlantic "should expect third party litigation funding to rise," and that "current economic conditions may actually accelerate the growth."
Meanwhile, a start-up venture is planning to try to launch an IPO in what may be one of the more creative attempts to try to fund litigation. According to a November 18, 2008 Pensions & Investments article (here), VR Holdings, Inc. is planning the offering to try to "provide liquidity" for the suit’s 2,500 claimants, 2,000 of whom are older than 65 and concerned that they may not live to see the suit settled. (For reasons specified below, these concerns may be well founded.)
According to the company’s President, the IPO will "give the claimants a vehicle to hopefully generate some funds for themselves." The offering is a "way to sell stakes in the eventual payout," in that the shares will be "like an option that sells for around $1 but has a potential upside of $12 or $14." (I guess this fellow believes the company is not yet in the quiet period.)
The suit, which has been filed against several investment firms, alleges that the defendants conspired to "take over, liquidate, and bankrupt" (I presume not necessarily in that order) a concert T-shirt maker.
In addition to possible legal objections to this litigation funding arrangement, the prospective IPO may face a more immediate practical obstacle. That is, the case, which was pending in the Northern District of Illinois, has already been dismissed with prejudice. It is unclear from the article whether a timely notice of appeal was filed. (No, I am not making any of this up.)
The prospective IPO sponsors may want to reconcile themselves to the possibility that investors may not exactly fall all over themselves to get a piece of this action.
And Finally: The Securities Docket blog has an interesting interview (here) with trailblazing blogger Mike O’Sullivan of the Munger, Tolles & Olson law firm, whose trendsetting Corp Law Blog showed the way for many blogs that followed, including The D&O Diary. After running his blog for some time, O’Sullivan ultimately stopped adding new posts in 2004.
In discussing the reasons why he discontinued the blog, O’Sullivan notes that he was facing "existential doubts" of the kind that will be familiar to any blogger, including yours truly: "Why am I doing this? What do I really have to say? Why are you reading this?"
In commenting on the current crop of corporate and securities blogs, O’Sullivan mentions that one blog he "slavishly" follows is Broc Romanek’s (and now Dave Lynn’s) Corporate Counsel blog (here), which I mention here because it is a blog that I read every day as well.
Hats off to Bruce Carton for the interview and for his new Securities Docket site (here) which has quickly also become a daily (or even several times daily) must-read.
Blogging Off: The D&O Diary likely not be adding any new posts for the next few days. We will resume our "normal" publication schedule after December 1.