Loans

The federal law enforcement probe into the financial affairs of the Dodgers’ controlling owner, Mark Walter, seems to focus on what looks like an obscure financial maneuver: related-party transactions.

They are deals between entities with business or personal ties, including loans, sales and other transactions, that can have legitimate reasons but pose potential conflicts of interest and typically require extra scrutiny.

Walter tapped insurers he controlled to provide most of the financing for the $2.15-billion acquisition of the Dodgers in 2012, The Times has reported — a deal later vetted by state insurance regulators.

Now, regulators reportedly are investigating whether billions of dollars’ worth of similar loans made by Walter’s companies were properly disclosed.

There are examples in which related-party transactions led to trouble, including the 2001 bankruptcy of Enron Corp., the largest at the time in Wall Street history. Bernie Madoff profited from his Ponzi scheme through related-party loans.

At issue with Walter is $21 billion in loans not disclosed to state insurance regulators that were made by two Delaware insurers he owns, according to ratings agency Fitch. The loans reportedly were made to companies with ties to Walter or his TWG Global holdings company.

The seriousness of the investigation has been highlighted by subpoenas served on the insurers and the reported seizure of Walter’s cellphone and laptop by federal authorities. Still, investigations by prosecutors and securities regulators can result in no action.

Here are more details on the risk presented by related-party transactions and why they require disclosure and extra regulatory scrutiny.

What do the investigations mean for his ownership of his sport teams?

The 66-year-old billionaire also took a majority stake in the Los Angeles Lakers last year and owns the Chelsea soccer team in the English Premier League. There is no indication yet that any of this has affected his ownership stakes, but the probe has yet to be completed.

What is the problem with related-party transactions?

Bruce Dubinsky, a forensic accountant who worked on the Enron and Madoff cases, says the issue comes down to the motivation of the parties and can be explained through an analogy.

Sell a car to a stranger and you both research its worth and come to an agreed “fair market value,” he said. Sell it to your brother, you might cut the price to “give him a deal,” and later even forgive the payments.

“That’s why, from an audit standpoint, there should be more scrutiny if you’re doing business with the left hand and the right hand, because it’s easier to manipulate things,” Dubinsky said. “Repayments can be delayed indefinitely. They are always more suspect to fraud.”

How does that play out in the insurance industry?

Insurance is one of the most regulated industries, since the companies hold premium dollars from policyholders for future claims payouts — and regulators want to ensure the money is there when it’s needed. Related-party transactions can threaten that.

“There is a conflict of interest between the policyholders’ interest in the company being profitable and the owner’s interest in getting the least expensive financing that is available,” said Jim Donelon, who served as Louisiana insurance commissioner for 18 years before stepping down in 2024.

“It potentially threatens the solvency of the company, which then threatens the welfare of the policyholders,” Donelon said.

The National Assn. of Insurance Commissioners, for whom Donelon served as president, provides guidance to regulators on how to review related-party transactions.

What are some of the most notable examples of related-party transactions turning into financial disasters?

The failure of Enron was a prime lesson in how related-party transactions can lead to a company’s downfall.

As the Houston energy trader struggled and racked up $30 billion in debt, chief financial officer Andrew Fastow thought he found a way to keep it off Enron’s books. He created off-balance sheet entities to unload the debt and took personal stakes in them, allowing him to sit on both sides of the negotiation and pocket millions.

They were “transactions with related parties that were not at arm’s length,” Dubinsky said.

The debacle was a driving force in the passage of the Sarbanes-Oxley Act of 2002, which tightened regulations over governance, accounting and related-party transactions.

What about the Madoff fraud?

The Madoff scandal, in which investors lost $17.5 billion in invested principal, operated like a typical Ponzi scheme with returns to older investors paid by money from new investors.

However, related-party transactions were key too, and some literally involved family members. Madoff’s brother, Peter, pleaded guilty to receiving $15.7 million in sham loans and giving $9.9 million in sham loans to family members. What’s more, the auditor was a related party.

“In Madoff, what were called ‘related‑party loans’ were just sham transactions — there was no real economic substance. It was simply Madoff taking money out of his own firm,” said Dubinsky, an expert witness for the government.

Is there anything comparable with the Walter probe?

The three situations appear entirely different, but the investigation into the related-party loans made by Walter’s Delaware Life and its affiliate, Clear Spring Life and Annuity, involves vast sums of money.

After receiving the subpoenas, the firms conducted internal investigations. They had reported having $1 billion in related-party loans but, after the review, they reclassified $21 billion worth of loans as related, including $4.6 billion held by Clear Spring, said Fitch analyst Jamie Tucker, senior director of North American insurance ratings.

Executives said they were unaware the loans were going to an affiliated company.

Is there any indication what the money was used for?

“Unclear at this stage,” Tucker said. “This a developing situation with ongoing investigations.”

One clue may be a report that Walter tapped insurers to fund more deals than the Dodgers acquisition. The Wall Street Journal said five insurers had provided more than $10 billion in deal funding since Walter’s financial services company, Guggenheim Partners, got into the insurance business after the 2008 financial crisis.

What have been the implications for the insurers owned by Walters?

Fitch said the financial restatement increased the two insurers’ related-party loans from 2% to 40% of their portfolios, the highest exposure among life insurers it rates in North America.

Fitch, A.M. Best and S&P Global also downgraded Delaware Life’s outlook to negative, though they said the insurer maintain a high level of financial strength.

“Our capital position and liquidity remain strong, and our financial strength ratings are unchanged,” said Group 1001, the insurers’ parent company, in a statement.

What has Walter had to say about all this?

He has not publicly commented, but a TWG spokesperson stated that, “Mark Walter and TWG have always acted in good faith, and those who have done business with Mark know him as honest and straightforward. Nothing about these transactions was any different.”

June 3 (Asia Today) — South Korea’s major commercial banks are facing growing pressure from a sharp rise in long-overdue loans, with the amount of loans unpaid for more than one year exceeding 1 trillion won, or about $716 million, in the first quarter.

Loans overdue for less than one year, which could later worsen into long-term delinquencies, also approached 6 trillion won, or about $3.84 billion. The increase suggests that borrower distress is deepening, especially among corporate borrowers, despite banks’ efforts to dispose of nonperforming loans.

The sequential expiration of COVID-19 loan maturity extensions also appears to be adding pressure on delinquent borrowers.

Banks, which have continued to post strong earnings, are concerned that rising long-term delinquencies could increase loan-loss provision burdens. The longer a loan remains overdue and the lower its chance of recovery becomes, the more banks must set aside in provisions.

If the Bank of Korea raises its base rate in the second half, borrowers’ repayment burdens could grow further, increasing the risk of additional long-term delinquencies. Analysts say asset quality management could become a key factor determining banks’ earnings performance.

According to financial industry data released Wednesday, the combined balance of loans overdue for at least one year at KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and NH NongHyup Bank reached 1.0972 trillion won, or about $716 million, in the first quarter.

That was up 49.3% from 734.9 billion won, or about $480 million, a year earlier. Compared with 261 billion won, or about $170 million, in 2024, the figure has more than quadrupled. It was also more than double the 508 billion won, or about $332 million, recorded in 2022 during the COVID-19 pandemic.

The increase appeared across all five banks. By bank, NH NongHyup had the largest balance of long-term overdue loans at 474.8 billion won, or about $310 million, followed by KB Kookmin at 166.9 billion won, or about $109 million, Hana at 155.2 billion won, or about $101 million, Shinhan at 151.5 billion won, or about $99 million, and Woori at 148.8 billion won, or about $97 million.

Loans overdue for at least one month but less than one year totaled 5.8851 trillion won, or about $3.84 billion, approaching the 6 trillion won mark. The figure was slightly lower than 6.1002 trillion won, or about $3.98 billion, a year earlier, but remained high by historical standards.

By category, loans overdue for at least one month but less than three months rose from a year earlier to 2.8225 trillion won, or about $1.84 billion. Loans overdue for at least six months but less than one year, which are considered more likely to become long-term delinquencies, reached 1.1111 trillion won, or about $726 million. Both were record highs since the banks began disclosing the relevant data.

The surge in long-term delinquencies is widely attributed to a sharp increase in new overdue loans in 2024 and 2025. Higher interest rates and weak domestic demand weakened borrowers’ repayment capacity, with some distressed borrowers slipping into long-term delinquency.

The increase appears particularly concentrated among corporate borrowers, whose loans are relatively large and harder to recover. At the end of March, the banking sector’s corporate loan delinquency rate stood at 0.68%, up 0.06 percentage point from 0.62% a year earlier.

“Distress pressure has continued for a long period in sectors such as construction and real estate leasing because of the weak housing market,” an official at a commercial bank said.

A renewed period of rate increases could add to the problem. The Bank of Korea left open the possibility of at least one base rate increase in the second half during last month’s monetary policy meeting, raising concerns that banks could face greater asset quality pressure.

Higher base rates can push up market rates, including bank bond yields, increasing borrowers’ interest burdens. That could deepen distress among loans already in arrears and increase new delinquencies, potentially expanding the volume of long-term overdue loans later.

That would likely translate into higher loan-loss provisions for banks. Banks classify loans into five asset-quality categories: normal, precautionary, substandard, doubtful and estimated loss.

When a loan is classified as substandard, banks must set aside provisions equal to 20% of the loan amount. As the overdue period grows longer and repayment capacity worsens, the required provision ratio rises. Doubtful loans, which are overdue for more than three months and have low recovery prospects, require 50% provisioning. Loans classified as estimated losses after more than one year overdue require 100% provisioning.

That means if a doubtful loan deteriorates into an estimated loss, the provisioning burden doubles.

A rise in provision expenses would directly weigh on bank earnings. In 2022, the five major banks set aside 3.5422 trillion won, or about $2.31 billion, in annual loan-loss provisions, while their combined net profit rose 18.6% from a year earlier to 13.7472 trillion won, or about $8.98 billion.

But in 2023, when banks set aside more than 6 trillion won, or about $3.92 billion, in provisions because of real estate project financing distress and other factors, their net profit growth slowed to 2.6%.

Provision expenses fell sharply the following year, but as delinquencies continue to rise, the possibility of renewed growth in provisions has increased. Analysts say careful risk management has become more important.

“As the delinquency period lengthens, the sale price of nonperforming loans tends to fall, so if long-term delinquencies increase, banks disposing of bad loans will also face greater loss burdens,” a financial industry official said.

“The key will be whether banks can prevent new distress from expanding while effectively clearing existing bad loans,” the official said.

— Reported by Asia Today; translated by UPI

© Asia Today. Unauthorized reproduction or redistribution prohibited.

Original Korean report: https://www.asiatoday.co.kr/kn/view.php?key=20260604010001073

California and a coalition of other Democratic-led states are suing the Trump administration over new limits on federal borrowing by aspiring nurses, physician’s assistants, therapists, social workers, mental health practitioners and other healthcare workers, arguing the changes will further reduce a struggling but vital workforce.

“This case is about protecting access to education, protecting our healthcare workforce, and protecting patients who rely on these providers every single day,” California Atty. Gen. Rob Bonta said during a virtual news conference Tuesday. “The Trump administration is going out of its way to make it harder and more expensive for students to pursue the advanced degrees necessary to serve their communities and pursue meaningful careers that allow them to support themselves and their families.”

Bonta said the new limits on loans sought by nursing and other healthcare students — which the U.S. Department of Education initiated in response to Republicans passing broader student loan caps as part of last year’s One Big Beautiful Bill Act — was an illegal overreach by the agency that was “deeply shortsighted” and went beyond the scope of the legislation.

“Congress can act,” he said. “But what the Department of Education can’t do is — contrary to law and in an arbitrary and capricious way and in violation of the Administrative Procedure Act — redefine what a professional student is.”

In response to the litigation, Trump administration officials defended the new rules, saying they will help student borrowers in the long run by driving down schooling costs at universities nationwide and preventing them from taking on too much debt.

“After decades of unchecked student loan borrowing that gave schools no reason to control costs, these commonsense loan caps — created by Congress — are already incentivizing colleges and universities to lower tuition,” Under Secretary of Education Nicholas Kent said in a statement to The Times.

Kent said Bonta and his fellow Democratic litigants “are more concerned about institutions’ bottom-line [than] American students and families’ ability to access affordable postsecondary education.” As one example of institutions responding to loan caps by lowering costs, Kent pointed to UC Irvine reducing the costs of its master’s in business programs by up to 38% to keep them below a federal loan cap for such programs.

The One Big Beautiful Bill, passed by Congress in July 2025, placed new limits on student loans, which could previously be sought for the full cost of such degrees. Starting this July, applicants categorized as “graduate students” will be capped at borrowing $20,500 per year and $100,000 in total, while applicants categorized as “professional students” will be allowed to borrow up to $50,000 annually and $200,000 in total.

On May 1, the U.S. Department of Education issued a new rule defining the “professional student” category as including those pursuing degrees to become doctors, pharmacists, dentists, veterinarians, lawyers, various medical specialists, pastors and other religious academics, and excluding those pursuing nursing and other advanced healthcare degrees.

In announcing the change, Kent said it would “simplify our complex student loan repayment system and better align higher education with workforce needs,” “drive a sea change in higher education by holding universities accountable for outcomes and putting significant downward pressure on the cost of tuition,” and “benefit borrowers who will no longer be pushed into insurmountable debt to finance degrees that do not pay off.”

Others fiercely disagreed, including healthcare industry leaders who also had objected to the rule change during a public comment period. Some said the changes would simply increase student reliance on less favorable, private-sector loans.

The American Assn. of Colleges of Nursing, in a statement, said it and its members were “angered by the Department of Education’s failure to support the nursing profession as the demand for patient care services rises.”

Nearly 150 members of Congress — including more than a dozen Republicans — wrote a letter the day after the rule was promulgated expressing “disappointment” over the exclusion of post-baccalaureate nursing degrees.

“At a time when our nation is facing a health care shortage, especially in primary care, now is not the time to cut off the student pipeline to these programs,” the lawmakers argued.

Rachel Zaentz, a spokesperson for the University of California, which is not party to the lawsuit but operates a vast network of public health programs, said in a statement Tuesday that UC “strongly opposed” the administration’s new caps on federal loans for nurses and other health professionals, which she said “will be felt most strongly by lower-income graduate students.”

“UC will continue to do all we can to ensure that cost is not a barrier for anyone who wants to pursue higher education, and we will continue to advocate with our federal partners for the programs and policies that make this possible,” Zaentz said.

Bonta rejected the administration’s argument that the new caps would help students pursuing a dream of a medical career avoid taking on too much debt — calling it “tone deaf.” He said those students are already “struggling with all costs right now” thanks to the Trump administration’s tariffs, war in Iran and lax approach to regulating monopolies and other big business.

He also rejected the idea that the new loan caps would force institutions to reduce costs for students, calling that “wishful thinking.”

The lawsuit is the 68th filed by Bonta’s office against the second Trump administration. Joining Bonta in the lawsuit — which was filed in the U.S. District Court in Maryland — were the attorneys general of Arizona, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, Virginia, Washington and Wisconsin, as well as the governors of Kentucky and Pennsylvania.

Times staff writer Jaweed Kaleem contributed to this report.