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Banco Popular Facing Losses in
REFCO
The Banco Popular is facing a
loss with the bankruptcy of
REFCO Inc., where it has us$12
million dollars in bonds in
hands of U.S. bankruptcy
authorities. The bank is facing
two options, both of which will
implicate a loss to the state
institution.
One of the options facing
Popular is the possibility of
selling its holdings in Refco,
or more specifically, its
rights, to a third party. The
bank has consulted with the
banking regulating authorities
and the Procuraduría de la
República (Attorney General's
office) for advice. The buyer
could be a bank, a stock
exchange or investment group.
At a U.S. Bankruptcy Court for
the Southern District of New
York hearing before Judge Robert
Drain, lawyers said the deal -
an orral agreement to pay all
its creditors, in concluding the
brokerage's nearly yearlong
bankruptcy - would allow secured
bank lenders to recover all of
the nearly $650 million they
lent, while bondholders would
recover more than 80 percent of
their money.
The Banco Popular had originally
invested us$22 million dollars
in bonds, but was able to
recover us$10 million before
Refco's bankruptcy filing.
Refco, is a New York-based
financial services company,
primarily known as a broker of
commodities and futures
contracts. It was founded in
1969 as "Ray E. Friedman and
Co."
Prior to its collapse in
October, 2005, the firm had over
us$4 billion in approximately
200,000 customer accounts, and
it was the largest broker on the
Chicago Mercantile Exchange.
The firm's balance sheet at the
time of the collapse showed
about us$75 billion in assets
and a roughly equal amount in
liabilities. Though these
filings have since been disowned
by the company, they are
probably roughly accurate in
showing the firm's level of
leverage.
Refco became a public company on
August 11, 2005. In October
2005, Refco entered crisis when
it announced that its chief
executive officer and chairman,
Phillip R. Bennett had hidden
us$430 million in bad debts from
the company's auditors and
investors.
In April 2006, papers filed by
creditors of Refco seemed to
show that Bennett had run a
similar scam going back at least
to 2000.
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