Investigations

ZAMANSKY LLC INVESTIGATES HYPED SALES OF EUROPEAN DEBT

Zamansky LLC is investigating whether banks have been engaged in hyped sales of European debt. Government debt from Portugal, Greece, Spain, Ireland and now Italy has plunged, putting Europe at risk of a debt contagion. European banks which hold as much as an estimate $2.8 trillion of government debt are at risk. Many also worry that the impact could spread to the United States.

The complaints involve a standard industry practice. When marketing a bond sale, banks offer would-be investors informal hints about how much demand there is for the debt, according to bankers and investors. That guidance influences the size of the orders that investors place. If there is heavy demand for a certain bond, investors generally enlarge their bids to ensure they get at least a piece of the action. Some banks and investors have complained to the ICMA that banks selling debt claimed there was greater demand for certain deals than there really was. Investors bought many more bonds than they had planned because they were led to believe they needed to place big orders or miss out, according to numerous banks and industry officials.

The International Capital Market Association (or ICMA), a European self-regulatory body, is reportedly examining whether banks have been improperly exaggerating the amounts of investor demand they are seeing in certain bond sales, including debt issued by European governments. The action by ICMA has been sparked by complaints from some banks and investors that some lenders talked up investor interest in some bond deals in an attempt to whet investors’ appetites for potentially risky bonds, such as those issued to support ailing euro-zone countries, these people say.

One deal under scrutiny is a “covered bond” issued by Spain’s Banco Santander SA last month, one person said. This covered bond is backed by collateral that stays on a bank’s balance sheet, in this case, Santander’s loans to Spanish regional and local governments. The deal was managed by HSBC Holdings PLC, Société Générale SA, Commerzbank AG and Santander itself. ICMA members have raised concerns that during the sale process, one or more of the banks told potential investors that they had lined up about €1.5 billion ($2.1 billion) of orders, exceeding the original size of the planned €1 billion offering, according to people familiar with the matter. But the deal fell flat. Investors balked at the prospect of exposing themselves to Spain’s shaky economy, and in order to move the €1 billion of debt, the underwriting banks had to buy hundreds of millions worth themselves.

If you were a victim of hyped debt sales or have suffered a loss in European debt, you should contact our securities arbitration law firm. Contact investment fraud lawyer Jake Zamansky at (212) 742-1414, or email at jake@zamansky.com.

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