Over the years, Puerto Rico has attracted the very wealthy, who come for the postcard-perfect beaches and the promise of a tax-free life.
The New York Times reports that many of them shelter their millions in local municipal bond funds, which have been hit hard of late as the island struggles with a weak economy, rising interest rates and outsize debt loads.
For UBS, which boasts that it manages money for half of the island’s millionaires - roughly $10bn - the downturn is said to have created a particularly nasty headache.
The bank’s clients allegedly piled into highly leveraged bond funds run by UBS and were encouraged by its brokers to borrow even more money to invest in those funds. In some cases, money was allegedly lent improperly, exacerbating current losses, according to UBS employees in the region close to the situation, who spoke on the condition that they not be named because of a company policy against speaking to the news media.
Now, a number of UBS clients have been forced to liquidate hundreds of millions of dollars in holdings in these funds to meet margin calls. And the bank says it has begun an internal investigation into the lending practices of some of its top-producing brokers in the commonwealth.
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image: © Martin Abegglen