Floating Rate Structured Repackaged Asset-Backed Trust Securities Certificates, Series 2005-2
- Joshua M Brown
- August 3rd, 2012
That thing in the headline above, that's the actual name of some piece of shit packaged Muppet product that brokers sold their clients at the former Wachovia Securities (what is now Wells Fargo Advisors).
No one with a Fiduciary Standard governing their actions or their conscience sells anything named "Floating Rate Structured Repackaged Asset-Backed Trust Securities Certificates, Series 2005-2." But the big firms have a fiduciary obligation to their shareholders, not their customers. That's why they crank out Frankenstein monsters like these, it's one of the most profitable lines of business in the whole bank.
Here's Floyd Norris at the New York Times:
Wells Fargo, the bank behind the security, now says that anyone who had read the prospectus should have understood that disaster was looming in June, when news related to the security was disclosed. But that disclosure — I’ll get to the details in a minute — had the opposite effect on the market. In New York Stock Exchange trading, the price leapt higher, on heavy volume, and stayed there for weeks.
The price per share was $24.88 on July 12, when trading was halted as investors learned they would get just $14.69 a share. Trading never resumed.
The difference between market expectations and realities boiled down to one fact: Wells Fargo concluded it was entitled to a payment of $10.69 a share to compensate it for the profits it would have made over the next 23 years had the security not been redeemed...
The bank called the securities Strats, a quasi-acronym.
Underlying that security was another one, a “trust preferred” security issued by JPMorgan Chase and sold to institutional investors. That security paid annual interest of 5.85 percent and matured in 2035. Trust preferreds were hybrid securities that appealed to banks because bank regulators treated them as capital but the Internal Revenue Service allowed banks to deduct the interest paid.
I'll be honest, I just read the article twice and I still don't know what the hell they're talking about. I have a fairly high IQ and 15 years in the business under my belt. So good luck to the careless retail brokers and their clients who are handed the prospectus for something like this.
I know guys at a boiler room downtown who are in the midst of - I kid you not - raising an $8 million PIPE for a Chinese bulletin board stock. The brokers are getting paid 5% to do it. But at least they know they're fucking people over and if you have an account with them, deep down you probably know it too and you secretly want it. In that situation, it's almost sexual in nature - this desire for the animal on the other end of the line to destroy your capital.
But when you have money on deposit at a giant bank with branches in your town and they refer you over to "investment services," sometimes you get thrown into something like this. And you never see it coming.
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.blog comments powered by Disqus
The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.