Brazilian mailmen became unlikely victims of Argentina’s default last week after a $168 million fund used by their pension plan recorded a loss on most of its assets.
The fund operated by Bank of New York Mellon Corp.’s local unit wrote down its value by about 51 percent after losses on securities linked to Argentine government debt, according to a regulatory filing yesterday. While the statement didn’t identify the entity that is the fund’s sole investor, all signs point to Postalis, the pension manager serving about 130,000 current and former postal workers in Brazil.
Postalis, which had 8 billion reais (US$3.5 billion) in assets according to the latest data available, said in statements as early as 2011 and as recently as May that it had invested in the fund. Postalis’s press office declined to comment.
Argentina last week failed to make a $539 million interest payment on its bonds, prompting Standard & Poor’s and Fitch Ratings to declare the country in default for the second time since 2001. The country’s bond prices have since retreated from a three-year high, and the International Swaps & Derivatives Association (ISDA) ruled that payouts must be made on a net $1 billion of derivatives linked to the country’s creditworthiness.
“Based on the ruling of ISDA on the default event, you could see many more” investors declaring losses tied to Argentina, Marco Aurelio de Sa, the head of trading at Credit Agricole Private Banking in Miami, said in a telephone interview.
Postalis is Brazil’s 14th-biggest pension group by investments under management, according to June 2013 data available from the Brazilian pension association Abrapp.
The country’s pension regulator declined to comment on the situation.
The BNY Mellon fund, called the Brasil Sovereign II Fundo de Investimento de Divida Externa FIDEX, said yesterday it wrote down net assets by 197.9 million reais to 185.5 million reais by booking a provision on credit-linked notes tied to Argentine bonds. The loss also stemmed from a change in methods for valuing the investments, according to the filing.
Credit-linked notes, a type of structured security with an embedded derivative, promise investors a higher yield than they can get from conventional bonds in exchange for a higher risk of losses under specified credit events, such as a default.
A BNY Mellon press official in Sao Paulo declined to comment on whether Postalis was the sole investor in the fund. Postalis was created in 1981 to guarantee retirement returns to its members, according to its website.
Argentine government bonds due 2033 were little changed at 83.645 cents on the dollar as of 9:15 a.m. in New York. BNY Mellon, which is also the trustee for the bonds, was barred from transferring an interest payment on the bonds by a U.S. court until Argentina settles with creditors from its 2001 default who sued for full repayment and won.
The Brazilian fund made the investment linked to Argentina’s sovereign debt in December 2011, when it was overseen by Atlantica Administracao de Recursos Ltda., according to the filing. BNY Mellon took it over in March 2012.
In August of that year, the U.S. Securities and Exchange Commission (SEC) charged Fabrizio Neves, Atlantica’s then-owner, with fraud for overcharging customers $36 million by using hidden fees on structured-notes transactions. Neves and the SEC agreed to settle the dispute in February of this year, according to a statement from the U.S. regulator.
Neves didn’t respond to a call to his home or emails seeking comment.