This is just to clear up some concepts, especially for the friends in media and some of the readers who may be confused. I really should be getting off the case, soon.
There are several “Stanford” institutions being mentioned these days, so it’s important to try to separate and clarify.
Stanford International Bank (Antigua) is the center of the controversy and where everything started. This is the “CD” issuer and where the $8 billion (more or less) portfolio seems to be missing. There are 28.000 account holders very upset at this bank.
Stanford Group Company, based in Houston, is NOT a bank. It (and its subsidiaries) is a broker-dealer and investment advisor, along the lines of a Raymond James (with our apologies to the good people at RJ). It also has accounts, about 35.000 of them.
SGC, however, does NOT have custody of the securities or cash in these accounts. These are kept at Pershing, J.P. Morgan Clearing and others. SGC and its team of advisors and brokers just “managed” these assets, that is gave orders to buy/sell or whatever.
So these assets are “safe” and the holders of these accounts (including Johnny Damon, my mistake) have not lost their money (unless they had Antigua CDs…of course). But these accounts are currently “frozen”, as in the holders can’t make withdrawals or shift their assets to a different broker/dealer (Merrill, Morgan Stanley, etc.) at this moment. This is a bother for these people, but it should be temporary.
The value of these assets is also a good question, since SGC has claimed to have $50 billion “under management”. Given the “numerical enhancement” ability of the Stanford PR team, that would seem to be an overstatement. Why is this important? Read on.
SGC is owned by Mr. Stanford directly, presumably bought or established somehow with money originating in Antigua (compensation or “Loans”, etc.). So if this business could be liquidated or sold somehow, that money could be used to compensate the Antigua CD holders (stress the could).
The ideal scenario: sell SGC to a competitor quickly, take that money and put it in the bank to pay those CD holders.
However, the SGC receiver, a Mr. Janvey is quickly finding out that SGC is a little black hole in itself. Being an analyst, we went to see SGC’s statements. Only a balance sheet is available (no P/L) and its from 2007. But that’s good enough.
First glimpse: $85 million in equity. Hurrah! However at second look, it is not so good. The cash and “equivalents” is listed at $48 million. Normally that would be good. But in the notes we see that Mr. Stanford made a capital infusion of $7 million in SGC early 2008. Why would a stockholder put in additional capital to this company, if it had $48 million in cash and was way over regulatory net capital requirements?
The $48 million may have been there, but it was more likely an “equivalent” than cash.
Receivables from Antigua? Perhaps.
The other item that stands out is $39 million in “Advanced compensation agreements” From what we gather, SGC would pay money upfront to investment advisors/brokers for them to bring their clients’ assets to SGC. These amounts would be amortized over time, as those assets would generate fees (supposedly) for the company. If the advisor/broker left, he or she would be on the hook for this money (look up “disgruntled ex-employees”).
Basically this is money that has already been paid and never gets collected, as long as the advisor/broker works at the firm. If the firm no longer offers them a job…well I guess they may not want to pay that money back. In the current situation, this item would seem to be worthless.
The buildings have mortgages, the equipment is leased, you get the idea.
How about the intangibles? Although numbers are lacking, referral fees from Antigua made up a good part of SGC income. It did generate income from its internal business, but that would not suffice to sustain its current structure. You may not be able to give the company away.
That leaves the 35,000 accounts and Mr. Janvey’s headache. He would love to be able to “sell” or assign this business to another broker/dealer investment advisor. But this isn’t quite as clear-cut as when Barclays purchased Lehman’s business. Who are those accounts really tied to? Stanford or the advisor? Or given what has transpired neither?. No one is going to buy a business that walks out the door the first chance it gets.
Time is of the essence; the longer the accounts are frozen the more likely they are to move away once thawed. There is little or no cash to pay employees to come in and work a transition.
And there is likely to be very little left for the US receiver to distribute back to Antigua (if any at all).
Of course, the good news (if you got all this) is that the fraud still stands at around $8 billion (not $50 billion).
EDIT: The "assets under management" were estimated by the receiver at $6 billion.