Posted on 07/28/2015 4:13:10 PM PDT by jimbo123
UBS AG is backing away from its own Puerto Rico bond funds, warning clients that they can no longer use them as collateral for certain loans after the island's financial troubles resulted in downgrades by major credit rating agencies.
In a July 13 letter to clients, reviewed by Reuters, UBS’ Puerto Rico arm said it would contact investors to discuss alternatives.
“The firm will also reduce to zero the collateral value assigned to all Puerto Rico closed-end funds shares,” UBS wrote to investors.
Puerto Rico’s Governor Alejandro Garcia Padilla dropped a bombshell on holders of its $72 billion debt in June saying that he wants to restructure debt and postpone bond payments. The fiscal problems have investors and credit rating agencies fearful the island will default on payments and not reach an agreement with creditors by an Aug. 30 deadline.
The UBS funds, many of which were stuffed with UBS underwritten Puerto Rico debt, have been a source of ongoing legal headaches for the firm.
Reuters reported last June that the FBI was investigating allegations about UBS' sales practices that touted the funds' high yields and tax advantages.
A UBS spokesman declined to comment on the letter or the funds. Some funds with AAA-rated debt are exempt from the policy, UBS said in the letter.
The funds are not traded on exchanges and UBS sets their value.
It is unclear why UBS declared the value of the funds' shares at zero for collateral purposes, but still lists share prices on its website. For example, one of the riskiest funds was worth $3.46 per share as of Thursday, according to UBS.
UBS' unwillingness to accept the funds as collateral reveals how risky the firm believes they are, said Craig McCann, an economist in Fairfax, Virginia, who is testifying on behalf of
(Excerpt) Read more at reuters.com ...
Wall Street is a no lose place if you are in the inner circle. They reap billions when they guess right. They reap billions when they are outright thieves, and when they get caught, the shareholders pay the fines. Vott a country!!
You can make plenty of money on Wall Street if you understand what you are doing.
Who would buy a closed-end fund that does not trade on an exchange? The whole point of such a fund is that the market sets the price, and there may be a discount or a premium to the NAV of the underlying securities.
I don’t know who ‘created the PR bond mess’ (presumably the PR government had to borrow the funds in the first place?)
but ...
if the bonds are deemed now to be unacceptable security... this could start a forced sale of other assets (not just the bonds themselves)
will try to watch how this plays out...
That’s why Bush is crying for a bailout for his PR bond-holding buddies.
“Who would buy a closed-end fund that does not trade on an exchange? The whole point of such a fund is that the market sets the price”
Exactly.
My thought is,
PR bonds have been known to be risky... for some time already.
Investors who were/are heavy in PR bonds...got them because they provided a higher yield (rate of return) than safer vehicles
Put simply, they’ve gotten their rewards already for the extra risk they chose to take on. I can see no reason for the rest of us to ‘bail them out’
that would mean they’ve collected the risk-reward AND incurred no actual risk whatsoever
having their cake and eating it too
as the old saying goes
But no doubt we will soon be spoon-fed crybaby stories about poor old people who put their entire worldly possessions into PR bonds and who are now destitute. The video will show them sleeping out in the street and queued up at the local soup kitchen for a free meal
Thus, we will be led (or misled) into ‘bailing out’ some bigtime investment bankers who “should have known better”
and it will be proclaimed a great Obama/Bush victory on behalf of the poor downtrodden PR people themselves
or maybe I just need an antacid?
My guess is there will be a bailout. In just a few days.
Printing presses to 30,000 rpm.
I needed a bailout about 7 years ago. Still do.
Bailouts - It’s the Bush Way.
ping
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