Report names banks that ‘created and profited’ from Puerto Rico debt
SAN JUAN – A newly released report lays out arguments against banks and other entities that “oversaw, issued and profited from illegal debt” in Puerto Rico and demands that the island’s Financial Oversight and Management Board pursue legal claims.
The report, titled “Six Billion Reasons to Go After the Banks,” was released Wednesday at a public forum organized by the student movement at the University of Puerto Rico’s Río Piedras campus by the Public Accountability Initiative (PAI), in partnership with Hedge Clippers, a group that advocates for income equality by targeting hedge and private equity funds, and the Center for Popular Democracy (CPD) a progressive politics advocacy group.
The report’s release comes amid a request in federal court by the fiscal oversight board and the Unsecured Creditors Committee (UCC) that $6 billion in Puerto Rico general obligation debt be ruled illegal.
Conducted in collaboration with “Construyamos Otro Acuerdo,” a campaign that seeks to organize communities for a “just recovery for the island through a democratically led debt restructuring process,” the report provides “context on the various debt issuances in question, and reveals a list of names involved in creating and profiting from the allegedly illegal debt, including underwriters, revolving door bankers, and law firms, to push the Board to hold them accountable,” a release describing the report reads.
On Friday, members of the campaign will be participating in a march to protest the third conference on the Puerto Rico Oversight, Management and Economic Stability Act (Promesa) by the Chamber of Commerce in San Juan.
The board “has until May 9 to file any illegal actions against those behind the portion of the debt considered illegal,” the release reads, while listing the following key findings of the report:
The list of underwriters on the deals includes: Barclays, Popular, UBS, Santander, and Morgan Stanley. Fees paid out of the offerings totaled $294 million.
The proceeds of several of the bond issuances were used to pay termination fees on toxic swaps – to some of the very same banks that were underwriting the bonds.
Banco Popular actually advised the GDB not to go through with the 2014 bond deal – and then acted as an underwriter, anyway, pocketing the fees.
Revolving door relationships at the banks raise questions of self-dealing and conflicts of interest.
“The Financial Oversight and Management Board agrees with us that a big portion of Puerto Rican debt is illegal,” Abner Dennis, Puerto Rico research analyst at Public Accountability Initiative and co-author of the report said. “Now by not going after the banks, they are failing to scrutinize their illegal actions.”
Eva Prados, the spokesperson for the Citizen Front for the Debt’s Audit, was cited in the release as saying her group wants “all the guilty, including banks, brokerage houses, accounting firms and law firms that enriched themselves with the creation of all this debt, respond legally for their mistakes, which is why we not only demand the cancellation of these $6 billion in unconstitutional debt, but we also demand that the guilty ones respond to the country and return all the millions won for these illegal debts.”
Julio López Varona, co-director of Community Campaigns of the Center for Popular Democracy and coordinator of Hedge Clippers, added that “once again, we find revolving doors of corruption that helped a few select people get rich. The question now is what will the [board] do to pursue the banks that profited from this illegal debt? Will the FOMB actually take a stand for Puerto Rico or continue its track record of siding with bondholders and banks while the island suffers?”
The report is available here: