Tuesday, September 18, 2012

Broker defends work for Treasurer Shoffner

Posted By on Tue, Sep 18, 2012 at 6:03 AM

ST. BERNARD: Big state bond dealer makes base in small office in Russellville.
  • MAJOR DEALER: St. Bernard Financial Services, a big player in state bond purchases, makes base in small office in Russellville.

St. Bernard Financial Services, the small securities house that has drawn scrutiny for its leading role in state Treasurer Martha Shoffner's investment of state money, distributed a news release yesterday defending its work for the state.

It's worth posting in full, which I do at this link.

St. Bernard noted, as I have already, the unfairness of comparing yields on the treasurer's short-term, highly liquid assets with those of state retirement systems, which invest over longer term, need not have the same liquidity and have the ability to take larger risks. St. Bernard, too, objects to a finding of a $58,000 "loss" on 12 bond trades while overlooking the millions of decline in value of teacher retirement system assets.

St. Bernard makes some points worth considering about the difficulty of comparing performance on similar, but nonetheless different sorts of bonds offered by different dealers.

St. Bernard says, too, that estimates of state "loss" are based on assumptions of lost investment opportunity, not "actual" loss. It throws numbers around, too — $30 million earned for the state by bonds sold by St. Bernard.

I was particularly interested in finding St. Bernard had offered an explanation for a putative $800,000 loss by the state in 2010 that has been mentioned off-handedly in various news accounts without much explanation. St. Bernard says:

The “economic loss” projections contain assumptions that, although factual, are unrealistic. i.e. once a bond is called the funds are reinvested in another bond, not a money market fund as the economic loss projections show.

Example:

One trade as reported that causes us to question how it was reported is a $25 million bond purchased from someone else on July 30, 2008 for $25 million. We suggested that the Treasury sell it on Jan 22, 2010 for $26,775,000. This is a cash gain of $1,775,000 (plus $112,152.78 in interest earned). Let me repeat that — a cash gain of $1,775,000 plus $112,152.78 in interest. This trade is reported as an “economic loss”. It becomes a sizable “economic loss” only if the replacement bond is called early and the proceeds are re-invested in money market funds. This is how the “economic loss” numbers were created.

Although very possible, that is unrealistic. It is unrealistic because when a bond is called, the proceeds are re-invested in another bond that pays a higher interest rate than a money market fund. That type of calculation is almost like someone saying “There is an economic loss because you didn’t bet on Bodemeister to win in the Arkansas Derby at Oaklawn this year”. That too is factually accurate but not realistic.

Again, don't get me wrong. Shoffner has mishandled this matter politically for a dead certainty and perhaps in actual custodianship of state finances. Key current and former employees are NOT ready to defend her actions. Billowing smoke remains on her soliciting of campaign money from players in the securities business and how she reported and spent that money.

But ... that doesn't mean these transactions lend themsleves to instant easy analysis and Legislative Audit's analysis seemed to reach for the easy example. More study of a comprehensive nature would be useful. I hope the Securities Department, less a political agency than the Audit Committee, will ultimately have more to say. That will depend, as their cautionary letter to St. Bernard indicated, on better recordkeeping on the part of the securities dealer.

Tags: , , ,

Favorite

Speaking of...

Comments (3)

Showing 1-3 of 3

Add a comment

 
Subscribe to this thread:
Showing 1-3 of 3

Add a comment

More by Max Brantley

  • The assault on Obamacare begins

    Donald Trump Friday night signed an executive order directing government to scale back Obamacare to the extent possible. Though the signing was mostly symbolic, it likely has implications for Arkansas.
    • Jan 21, 2017
  • Two dead in North Little Rock shooting

    two people were fatally wounded about 9 p.m. Friday in a home in the 1400 block of Division Street, North Little Rock.
    • Jan 21, 2017
  • 2nd Amendment meets the 1st in Fayetteville on campus carry

    They've had a forum in Fayetteville today on Rep. Charlie Collins' fervent desire to force more pistol-packing people onto the campus at the University of Arkansas (and every other college in Arkansas.) He got an earful from opponents.
    • Jan 20, 2017
  • More »

Readers also liked…

Most Shared

Visit Arkansas

1.73-carat diamond found at Crater of Diamonds State Park

1.73-carat diamond found at Crater of Diamonds State Park

Jack Pearadin and Doug Nelsen found a 1.73-carat diamond after nearly a year of searching the park's field.

Most Viewed

  • Bill filed to exempt certain police body-cam and dash-cam recordings from FOI

    Rep. Jeff Williams (R-Springdale) filed a bill yesterday to exempt any recordings from police body-worn cameras or dash cameras that is deemed "relevant to an investigation conducted by a law enforcement agency" from disclosure under the Arkansas Freedom of Information Act.
  • State Treasurer staffer resigns after offensive comments

    Treasurer Dennis Milligan today announced he has accepted the resignation of Hunter Hatcher, an Outreach Coordinator for the Treasurer's office. Hatcher publicly stated on social media that because Donald Trump was taking office, "Gay jokes are back on ya bunch of homos," and also made derogatory comments (in the form of lame jokes) regarding the role of women.
  • Collins files campus carry bill

    As expected, Rep. Charlie Collins yesterday filed a bill to force public universities and colleges to allow staff members to carry concealed handguns.
  • What's next for Hillary Clinton?

    Politico's Gabriel Debenedetti, filing from Little Rock, reports on the future plans of Hillary Clinton in the wake of her loss in the presidential election
  • UALR joins LRU in dead acronyms file

    Chancellor Andrew Rogerson has announced to staff that UALR will be known henceforth as UA Little Rock.

Most Recent Comments

  • Re: Collins files campus carry bill

    • Hubby and I are sitting in the Old South in Russellville, listening to 60s music…

    • on January 24, 2017
  • Re: What's next for Hillary Clinton?

    • Let's hope the fact that HRC and Wasserman Schultz railroaded Bernie Sanders is given given…

    • on January 24, 2017
  • Re: Collins files campus carry bill

    • If Arkansas legislators were really serious about Second Amendment rights, they'd eliminate the dangerous gun-free…

    • on January 24, 2017

Blogroll

 

© 2017 Arkansas Times | 201 East Markham, Suite 200, Little Rock, AR 72201
Powered by Foundation