Markets Magazine
How UBS Spread the Pain of Puerto Rico's Debt Crisis to Clients
The Swiss bank packed pension bonds it underwrote into mutual funds it marketed on the island with a hard sell.
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UBS had a good thing going in Puerto Rico. The Swiss bank served as an adviser to the commonwealth’s Employees Retirement System, led the underwriting of a $2.9 billion bond issue for the pension agency in 2008, and then stuffed half of those bonds into a family of closed-end mutual funds it sold exclusively to customers on the island. It collected fees at every step.
Now, with the U.S. territory in the downward spiral of a government debt crisis, it’s all coming apart for UBS, long the biggest retail brokerage on the island. After UBS helped the government dig itself into a deeper hole and put island customers on the hook for the losses that followed, its Puerto Rico saga has become a cautionary tale of how risks can multiply.