Dedicated to Deposits: Deals, Data, and Discussion

Stanford International Bank and Other Foreign Banks That Offer High CD Rates

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This recent BusinessWeek article covers the history and government investigations of Stanford Financial. What makes this particularly interesting for savers is the bank's CDs. According to the article:
Financier R. Allen Stanford makes investors an enticing offer: He sells supposedly super-safe certificates of deposit with interest rates more than twice the market average. His firm says it generates the impressive returns by investing the CD money largely in corporate stocks, real estate, hedge funds, and precious metals.

As you might expect after the Bernard Madoff scandal, there is a lot of suspicion, and federal and state regulators are investigating. According to the article, Stanford's current one-year CD has a rate of 4.50%. This is one percent higher than the best CD deal from a federally insured bank (3.50% 11-month CD at Doral Bank Direct).

Stanford International Bank is part of Stanford Financial Group that offers the CDs. It's a foreign bank that's based in Antigua. Thus, it has no FDIC insurance. According to the bank it's chartered under the laws of Antigua and Barbuda, and it's regulated by the Financial Services Regulatory Commission and the Ministry of Finance.

Foreign banks have been advertising high CD rates in the US for years. One of these banks that has been around for a long time is Millennium Bank that's based in St. Vincent. I first researched this bank in October 2005. Recently, several readers have mentioned high CD rates being offered by Mexican banks.

I have no idea how safe and sound these institutions are. As we learned with Madoff, things can go well for investors for many years before major problems arise. Many of these foreign banks have some regulatory oversight by foreign governments, but it's difficult to know the extent of the oversight. That's why I stick with US banks and credit unions which are regulated by state and/or US federal agencies.

If you see a website advertising a very high rate on a certificate of deposit or some other bank-like account, you should first determine if the website is from a FDIC or NCUA insured institution. Both FDIC and NCUA are agencies of the US federal government. FDIC covers banks and NCUA covers credit unions. I have more details in this 2007 post on verifying FDIC or NCUA membership. I also discuss the benefits of FDIC and NCUA membership. It's more than just deposit insurance.


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Comments
12 Comments.
Comment #1 by Duck (anonymous) posted on
Duck
"I have no idea how safe and sound these institutions are. As we learned with Madoff, things can go well for investors for many years before major problems arise."
I add only that when the problems arise it usally means its all gone gone gone!! My parents early on in life told there is no free lunch and no get quick rich to be had I found these to be true thats why I am here. Thanks Banking Guy for posting on this as so many are tempted by a quick dollar or high return.

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Comment #2 by Anonymous posted on
Anonymous
Fools.

Now lets see how many idiots invest in this " get rich quick "
deal.

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Comment #3 by Anonymous posted on
Anonymous
Regarding Doral Bank... They do not accept IRAs, Trust or Business Accounts. I emailed them at about 9 PM MST this evening and got a response by 9:45 PM. It was unsigned and had a typo...but they did respond...

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Comment #4 by Bill (anonymous) posted on
Bill
I've had some positive experiences with offshore banks. Antigua is a major offshore financial center. This bank may not be as risky as you think. US taxpayers make sure you declare the account on your tax return. The IRS is always looking to catch people hiding money offshore.

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Comment #5 by Anonymous posted on
Anonymous
Another Caribbean bank? A lot of money invested offshore is the way to hide your money from taxation. A lot of tax dodgers intentionally put their money in offshore accounts so it not reported and then they access it through EFT and ATM activity. As for the safety of these kind of accounts, I hardly hear about them. I would think most are operating without any problems, but do remember that a foreign institution is held to different standards than US banks.

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Comment #6 by kingabraham3 (anonymous) posted on
kingabraham3
their under FBI investigation, so you'd have to be really dumb to give them any money right now.

http://online.wsj.com/article/SB123457038088986331.html?mod=googlenews_wsj

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Comment #7 by James Donaldson (anonymous) posted on
James Donaldson
As a former Stanford employee, I have seen a lot of half-truths and some outright lies thrown around regarding Stanford International Bank (SIB). There have been many facts that have not been reported that might interest investors, the public in general, and particularly the media, which seem to rely on bloggers for their sources without doing any fact checking.

Over the last 18 months, there have been unprecedented challenges which have confronted the global financial industry and have led to heightened scrutiny by regulatory bodies, the public and the media. Although Stanford Financial Group has not been the beneficiary of any government bailout money, they are not immune from this crisis; however any comparisons to recently defaulted institutions and scandals are not relevant to the organization and are a disservice to Stanford employees and clients worldwide.

One analyst's opinion regarding Stanford International Bank has been picked up by numerous blogs and reputable news outlets and printed "as fact." These facts need to be known: Stanford International Bank was able to show a positive return for doing what U.S, banks did NOT do: --SIB does not make loans, they have no loan loss reserves, they took no markdowns to capital and had no exposure to subprime. If U.S. Banks had followed this strategy -- chances are they might have shown positive returns.

Has anyone bothered to check out the Analyst -- one Alex Dalmady -- who is he, what is his track record? It is easy to point fingers and make broad statements -- what expertise does this guy have? I would hope the more reputable outlets did this homework, but they seem to have picked his words up verbatim and did no "fact checking" on the source of all of this at all.

The media has a responsibility to report accurately and balanced -- that is not apparent in Stanford's case. He may be flamboyant, but that is not a crime. Misleading and scaring thousands of investors is.

And let's not forget that ALL of this started with two disgruntled employees who owe Stanford a lot of money (Bloomberg link with what they actually owe: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNO2xKLg68_0) running to regulators accusing Stanford when they found out Stanford expected them to pay back what they owed. To date, there has been NO evidence of wrongdoing on the part of Stanford, but evidence of illegal selling practices by the two employees has been uncovered and turned over to regulators. Why has not one reputable media outlet reported this??

Stanford International Bank has NEVER failed to make an interest payment or pay funds at maturity in the nearly 25 years of its history. That is 25 YEARS, not weeks or months. Also, while not obligated to, this Bank has always tried to help the customers who needed early withdrawals. This Bank has suspended THE Privilege of early withdrawals to ensure the protection of its entire depositor base. The media hype and continued repetition of half truths is only causing heightened anxiety, and this step has been taken in light of this barrage of negative and misleading statements.

SIB structures, operations and higher returns are no different than other private international banks except that SIB has narrowed its products to CDs and deposit accounts, as well as ancillary products like credit cards and loans to existing clients. The rates for a 5-year jumbo CD are from 1 1/3% to 6 7/8% and are comparable to other international institutions. This information is verifiable on bankrate.com.


This analyst states that it is near to impossible for SIB to show a positive return -- implying there must be fraud for this to occur. Plenty of financial investment vehicles had positive returns -- including more than 1,600 hedge funds. The characterization that positive must be fraudlent is simply false and sensationalism.

Are we going to launch investigations of all firms who did NOT lose money for their investors last year?

Madoff/ponzi characterization -- Separately, at Stanford Group Company, clients assets are held at Pershing LLC, a subsidiary of Bank of New York Mellon—one of the largest custodian organizations in the world. Clients’ brokerage account assets are insured and segregated to assure return of their assets in the event of any catastrophic events like the ones that have occurred to world class financial institutions in the last two years. Madoff was his own custodian.....more sensationalism. Report the truth...report the Pershing relationship. There has not been one fact proving that Stanford International Bank's custodian relationships are not holding sigificant assets or that their independent money managers are not managing significant amounts for the bank.

Federal Agencies are "investigating" Stanford -- regulators are a reality for any U.S. Broker/Dealer....the SEC and Finra were in Stanford offices as part of a routine examination. No one has confirmed or advised an "investigation is ongoing. There was an article in the New York Times earlier this week with headline "Hundreds of Regulators descend on Citi....." Regulators are feeling the sting from their testimony to Congress, and are responding with more oversight. Stanford has no problem with this and has track record of full cooperation with regulators over the years.

Since the first Stanford Company’s founding during the Great Depression, the Stanford Financial Group has grown into a full-service portfolio of companies servicing individuals and institutions. Stanford Financial Group is a privately held global network of independent, affiliated financial services companies including Stanford Group Company, Stanford International Bank and Stanford Trust.

The Stanford International Bank (SIB) is but one aspect of the overall company portfolio and operates in St. John in the Caribbean Island of Antigua and Barbuda. The Bank has a prudent investment approach that it has followed for over 20 years and has over 30,000 clients in over 90 countries. It has stringent know-your customer/anti-money laundering policies and procedures and terrorist financing tracking. SIB remains a strong institution, and even without the benefit of billions in US taxpayer’s dollars SIB is taking a number of decisive steps to reinforce SIB financial strength to keep the capital base intact to protect SIB depositors.

Stanford International Bank has used the same auditing firm for a number of years. Once the external bank auditors are selected by the Board of Directors they must be expressly approved by regulatory agencies. The regulatory framework follows international standards set forth by Basel I and II. For the record, Basel I and Basel II are the highest standards in the industry.

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Comment #8 by srockgibson (anonymous) posted on
srockgibson
What a timely post Mr. James Donaldson. Since the SEC has closed down Stanford for this morning for being a Ponzi scheme, I guess we can safely disregard everything you said.

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Comment #9 by Anonymous posted on
Anonymous
All I can say is WOW!!!!!

Maybe low interest rates at FDIC insured banks aren't so bad after all.

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Comment #10 by Anonymous posted on
Anonymous
It was created back during the Great Depression? So what? I know of several companies that were established back in the 19th century and they are kaput now. Age has no relevance to any company's reputation or survivability, no matter what the advertisements tell you.

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Comment #11 by Anonymous posted on
Anonymous
The main reason for establishing offshore accounts is to shield your money from taxation. You can run, but you cannot hide.......

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Comment #12 by Anonymous posted on
Anonymous
"In the twin-island Caribbean state of Antigua and Barbuda, where Stanford is the biggest private employer, Prime Minister Baldwin Spencer said the SEC charges could have "catastrophic" consequences, but urged the public not to panic."

http://news.yahoo.com/s/nm/us_stanford

Mr. James Donaldson,
Care to add any additional comments?

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