By Raul Gallegos
NEW YORK Nov 19 (Reuters Breakingviews) - The collapse of
Colombia's largest brokerage evokes MF Global MFGLQ.PK more
than Lehman Brothers LEHMB.UL. Interbolsa's ICB.CN rapid
demise is a tale of an ambitious firm with shoddy financing
felled by bad bets and a chronic lack of liquidity. Despite its
importance to the country's financial markets, however, the
fallout shouldn't be systemic.
Interbolsa handled a third of the daily activity in the
Bolsa de Valores de Colombia BVC.CN and was also a dealer in
its home country's sovereign debt. But unless the dodgy funding
turns out to be more pervasive, absorbing the loss of such a big
player should be manageable. Interbolsa was leveraged at 18
times equity - higher than U.S. firms operate under, but not
The bigger problem was Interbolsa's repurchase agreements.
Rival brokerage Ultrabursatiles reckons, for example, that repos
on shares of Fabricato FHT.CN equaled 70 percent of the
textile maker's market value as of early November. It also
appears Interbolsa may have used its $174 million of assets
under management to create a market for such illiquid stocks to
finance operations. If so, that went far beyond the questionable
use of repos by MF Global and Lehman to hide exposures or mask
leverage. There may also be more surprises. Colombia is probing
the possibly illegal use of customer funds, market manipulation
and tax evasion.
It’s hard to blame the watchdogs much, though. They can only
step in once a brokerage fails to honor an obligation, as
Interbolsa did in early November. Colombia’s Superfinanciera
monitored the lack of liquidity and a sale that didn't
Colombian authorities also have no power to scrutinize other
parts of the larger Interbolsa financial group, which includes
an asset management arm and an airline. This means they see an
incomplete picture. The government has frozen Interbolsa's
assets and given the troubled holding company six months to
reorganize or face liquidation.
It needs more options. Even before the 2008 financial
crisis, U.S. watchdogs could have intervened more directly.
Post-mortems on MF Global and Lehman found the problem was that
regulators failed to act, worked at cross-purposes and sought to
protect their own fiefdoms first.
Colombia's problem is a lax approach. There's no guarantee
giving watchdogs more teeth will prevent future scandals. But
leaving any capital market at the mercy of its middlemen,
whether a mature one like America's or a developing one like
Colombia's, is asking for trouble.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Colombia's regulators have opened a criminal investigation
into the failure of the country's largest brokerage Interbolsa,
the attorney general said on Nov. 14. The financial markets
regulator took administrative control of the firm earlier in
November, citing liquidity issues after it failed to pay back an
$11 million overnight loan.
Colombian govt orders reorganization of Interbolsa parent
Colombia opens criminal probe into Interbolsa collapse
Unplanned legacy [ID:nL1E8MFDBY]
Carpe diem [ID:nL1E8M59QY]
(The author is a Reuters Breakingviews columnist. The
opinions expressed are his own.)
- For previous columns by the author, Reuters customers can
click on [GALLEGOS/]
(Editing by Jeffrey Goldfarb and Emily Plucinak)
Keywords: BREAKINGVIEWS COLOMBIA/BROKERAGES
(C) Reuters 2012. All rights reserved. Republication or redistribution of
Reuters content, including by caching, framing, or similar means, is
expressly prohibited without the prior written consent of Reuters. Reuters
and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.