Aladdin’s new lamp

One of the big players in the fixed income market, BlackRock, is out with news that it will be providing a “crossing platform” to allow the world’s largest institutional players to trade bonds with each other:

BlackRock Inc. is planning to launch a trading platform this year that would let the world’s largest money manager and its peers bypass Wall Street and trade bonds directly with one another…

The trading platform would be run by the New York-based company’s BlackRock Solutions arm and offer 46 clients – including sovereign-wealth funds, insurance companies and other money managers – the ability to trade in corporate bonds, mortgage securities and other assets, company executives say.

Only BlackRock can pose a substantial challenge to Goldman Sachs, Morgan Stanley, JPMorgan and other incumbent investment banks on the bond-trading front. With the launch of an eBay-like place for the world’s largest fixed income traders, BlackRock CEO Larry Fink is challenging the investment banks’ dominance in fixed income trading. Wall Street commands fixed income markets not only because its leveraged balance sheets give it the ability to provide immediate liquidity for trades but, more important, because it underwrites 99 percent of all new bonds. Wall Street knows who owns which bonds and at what price. This has given the investment banks enormous influence over insurance firms, pension funds and commercial banks in suggesting when to sell old bonds and in setting price levels for new bonds. Fixed income trading desks in megabanks have mapped the universe of fixed income ownership in a way that is unmatched by other firms.

Except maybe for BlackRock. The firm’s power is its Solutions group, the army of geeks who have designed and built the best-in-class portfolio management, analytic and order management systems for firms that own fixed income. More than 5 percent of the world’s financial assets are run through or analyzed by systems developed by BlackRock. No single investment bank, not even JPMorgan, can match this. Take a look at what the BlackRock product brochure says about the group that does client portfolio analysis – the very same group that helped the Federal Reserve Bank of New York value the assets it purchased from Bear Stearns when that firm collapsed:

Muni bonds for rich seniors

When I hear “municipal bonds” I usually think of the “public wealth” being used to assist the less fortunate or being used to build common assets that are available to all the public. But in Massachusetts it’s the very wealthiest that have benefited from public financing.

Linden Ponds, an upscale retirement community where President George H.W. Bush’s brother, Prescott Bush Jr., spent the last part of his life, is in the process of defaulting and restructuring on $152 million in municipal bonds.

From the Boston Business Journal:

Last month, Linden Ponds skipped a principal and interest payment on its bonds as a way to conserve cash. Linden Ponds is a nonprofit whose creditors include municipal bond mutual funds based in Boston. Sovereign Bank also plays a major role as the letter of credit provider, or financial backstop, on the variable rate portion of the debt.

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