Colombian Finance Minister Mauricio Cardenas sought to quell any market unrest this week by blaming poor management within brokerage firm Interbolsa for its collapse rather than any widespread problems of liquidity within Colombia’s financial sector.
The firm, which had over 50,000 clients and carried out nearly 30% of Colombia’s brokerage activity, was liquidated on Wednesday with the company’s assets set to be sold in order to pay investors and meet its other financial obligations, a decision which Cardenas said was made because of “no viable alternatives”.
Cardenas claimed on Caracol Radio on Thursday that the markets were behaving as normal despite the liquidation: “There haven’t been any requests for support, which means there haven’t been any problems. Small brokerages are operating in stable conditions.”
Early analysis suggests that the company became overstretched by its reckless policy of depending on liquidity from reverse repurchase agreements tied to the price of shares.
An ex-employee of the firm, speaking to Financial Times blogger beyondbrics, claimed that the reverse repurchase agreements were “being used to raise more money so that they can own more stock than their own resources allow.”
The crisis began a week ago on the 2nd November when Interbolsa´s trading was suspended and financial regulators seized the firm after it failed to meet a US$11 million payment on a loan from a local bank.
It was initially expected that the regulators would take two months to take action on whether to liquidate the firm, however on Wednesday this decision was swiftly taken in order to “safeguard the interests of the Colombian financial market”.
Clients of the company have been shielded from the collapse through the option to apply for a transfer of their assets to another firm.
Interbolsa’s parent company, Grupo Interbolsa, has been unaffected by the liquidation and is expected to continue operation.
Interbolsa is the second brokerage to be liquidated in recent years due to poor management when Proyectar Valores was shut down in 2011.
In spite of this though, Colombia’s financial sector is one of the most stable and robust in Latin America, and has remained resilient amid the turmoil of the global economic crisis since 2007.