Tuesday, August 18, 2009

Non-Insurer Insurer?

"Next to a Chinese restaurant in Burlington, Vt., sits a quiet guardian of Wall Street--an obscure insurance company that is supposed to protect big-money investors in the event of a catatrophic failure of a major brokerage firm. ... Now, after years in the shadows, the insurer, the Customer Asset Protection Company, could finally be put to the test, and questions are starting to swirl. ... If it were overwhelmed by claims, the banks and brokerage companies that own Capco, as it is known, could end up owing billions of dollars. ... Officials at the New York State Insurance Department are concerned about the company's ability to withstand the Lehman bankruptcy, the largest in history. ... The state is examining whether the company sold policies without the means to cover them, according to a person with direct knowledge of the inquiry who had signed confidentiality agreements. ... Capco was created in 2003 by Lehman and 13 other banks and brokerage companies as a kind of marketing tool. ... Capco, which is private, is something of a financial mystery, Its members include Wall Street giants like Morgan Stanley, and Goldman Sachs, banks like JPMorgan Chase and Wells Fargo, smaller brokerage firms like Robert W. Baird & Company and Edward Jones, and Fidelity, the mutual fund giant. ... Although Capco's finances were never disclosed publicly, the company was initially given a high rating by Standard & Poor's. ... 'Right away, the whole Capco thing just did not pass the smell test,' said Robert Meave, an outside consultant for Schwab at the time, who evaluated the insurance company", my emphasis, Zachery Kouwe at the NYT, 31 July 2009, link: http://www.nytimes.com/2009/07/31/business/31insure.html.

Another Wall Street scam. With lots of intellectual firepower, do we believe no one saw Capco did not operate on a sound actuarial basis? Where are the indictments? Capco went from NY to Vermont to avoid dicslosure. This should be admittable to show "consciousness of guilt". Preet Bharara, where are you? Capco in effect, was an "advance fee scam". How will Goldman have Zimbabwe Ben bail it out of this?

3 comments:

Anonymous said...

Do not question them, they own you.

Anonymous said...

On Feb. 10, 2009, Standard & Poor's Ratings Services withdrew its 'B-'
counterparty credit and financial strength ratings on Customer Asset
Protection Co. at the company's request.
Earlier today, Standard & Poor's lowered these ratings to 'B-' from 'BB'.

Am I getting this right?

An insurer, formed by a dozen brokers, promises to cover the losses of said brokers clients if one goes belly up?

And they would have told their clients that their accounts were insured beyond SIPC limits?

But the dealers must have known how thinly capitalized this sham "insurer" was... and Standard and Poors was telling them with the low rating...

I think the Vermont insurance regulator should put up a blog and let people put up suggestions and comments about this issue. It sounds like it's going to blow up really big soon.

Independent Accountant said...

Anonymous:
You are mostly correct. In December 2003 S&P gave Capco an A+ rating. Apparently in late 2008 it reduced the rating to BB and withdrew the rating on 10 February 2009.
S&P held the Capco rating at A+ for over four years as far as I can tell.