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Brokered CDs at Failed Banks

Sunday, May 2, 2010 - 3:36 PM
Did you have a CD at any of those failed Puerto Rican banks? It appears brokered CDs at those banks were fairly prevalent. As being reported in this Boglehead thread, many had purchased these brokered CDs through their brokerages.

Refer to my bank failure post for more info on these failed Puerto Rican banks.
1
Ken TuminKen Tumin5,472 posts since
Nov 29, 2009
Rep Points: 125,708
1. Sunday, May 2, 2010 - 7:43 PM
I had at least seven brokered CD's through Vanguard at a combination of the failed banks.  For some time they had consistently given the best rates in town.  There being no free lunch, buying those entailed the risk I am experiencing now - having to reinvest at lower present rates.  Thanks to this site however, and your passing along of heads up information collated from the Calculated Risk blog, I was able to liquidate those CD's for a premium on Thursday last week.  I guess the brokers who purchased them should have been visiting this site too!  Thanks again for the fine job you do.
1
AnonymousAnonymous2,282 posts since
May 9, 2010
Rep Points: 3,957
2. Sunday, May 2, 2010 - 11:25 PM
Those three banks were consistently among the top at brokers who get their brokered CD listings from BondDesk - Vanguard, E*Trade, etc. The yields they were offering were at least a 0.5% higher than those from the next tier of banks. Fidelity and Schwab didn't offer CDs by those Puerto Rico banks and were at a disadvantage. Some blamed Fidelity and Schwab for offering lower yields when Fidelity and Schwab actually have very little to do with it. Now that those banks are gone, I expect the gap in brokered CD yields will become smaller among different brokers.
1
AnonymousAnonymous2,282 posts since
May 9, 2010
Rep Points: 3,957
3. Monday, May 3, 2010 - 3:34 PM
I posted comment #1.  Unfortunately, since that time, my broker Vanguard has informed me that the trade on Thursday, one day prior to the FDIC action on Friday, is void, and that I will be receiving funds from the FDIC for the brokered CD.  The reason they gave was that there will be no CUSIP available to deliver to the buyer on settlement day 4 days hence.  I'm objecting strenuously at the moment, but my ultimate success in fighting for the premium paid by the buyer will turn on the legal obligations in this case.  I maintain the buyer bought the potential risk and reward of the CD the moment the trade was executed, and that settlement is just an accounting matter.  The don't get a CUSIP, the get the face amount of the CD plus accrued interest of course.  Can anyone cite any legal sources on this?  This is an important issue for us all, and I could use all the brain power help I can get. 
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AnonymousAnonymous2,282 posts since
May 9, 2010
Rep Points: 3,957
4. Sunday, May 9, 2010 - 1:42 PM
This has me very worried since I have a brokered Vanguard CD through one of these failed banks. I didn't even know about this until I decided to check my Vanguard account this morning. I had had no word from Vanguard about this. Right now, I am not going to worry about the interest that I was supposed to make. I just want to know if my basic pinciple (less than $250,000) will be covered by FDIC, or will it not because it is a brokered CD? Can anyone help? Thanks.
1
AnonymousAnonymous2,282 posts since
May 9, 2010
Rep Points: 3,957
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