DTCC update on status of flooded securities vault..

http://www.nypost.com/p/news/local/manhattan/sunken_treasure_R1WidDOAwSBvWbYgSIoflJ

Billions in bearer bonds could be lost due to Hurricane Sandy: sources

• By MICHAEL GARTLAND
• Last Updated: 11:01 AM, November 18, 2012
• Posted: 1:23 AM, November 18, 2012

It’s the biggest mystery on Wall Street.

Hurricane Sandy floodwaters inundated a 10,000-square-foot underground vault downtown, soaking 1.3 million bond and stock certificates — including bearer bonds that function like cash — and putting them in danger of turning to mush.

A contractor working for the vault owner, the Depository Trust and Clearing Corp., is feverishly working to restore the paper.

But the value of the threatened notes under 55 Water St. remains unknown to all but the innermost circle of Wall Street bankers.

One source said $70 billion in bearer bonds were in jeopardy.

DTCC — a depository controlled by the biggest financial firms on Wall Street — won’t say exactly what was in its vaults, how much the notes are worth, and who owns what.

Most of its member firms, including Deutsche Bank, JP Morgan Chase, Bank of America, UBS and Citi did not return calls.

The exception was Goldman Sachs, whose spokesman Michael DuVally confirmed Friday to The Post that his firm stored bearer bonds in the DTCC vaults. He acknowledged they would be nearly impossible to redeem if destroyed.

Yesterday morning, DuVally elaborated, and said the value of the Goldman bonds was “less than $1 million.” An hour later, he called back to say, “The market value of bearer bonds potentially impacted is less than $10,000.”

DTCC spokeswoman Judy Inosanto would say only that “a variety of equities and bonds” were damaged. “I can’t go into details. We do not provide values for security reasons.”

Even a contractor who bid on the cleanup and recovery job — the notes were drenched in diesel- and sewage-tinged water that filled 55 Water Street’s three sub-basements — clammed up when asked about the damage.

“It’s nobody’s business,” he said. “The public doesn’t need to know what’s in that vault. It’s between them and their customers.”

What is known is that for decades the vault housed millions of bearer bonds — worth many times that amount in dollars. In 1990, two-thirds of the 32 million notes in the vault were bearer bonds, DTCC records showed. Even as bearer bonds matured and the notes were removed, the vault continued to hold 5.4 million bearer bonds at late as 2003.

Experts say the only hope for saving the stacks of bonds would be to freeze-dry them in a cold vacuum chamber. As the air pressure in the chamber is reduced, and heat is increased, moisture in the documents would evaporate.

Security would have to oversee a tight chain of custody during the procedure, and the entire process could cost upward of $2 million.

Belfor, a Texas-based recovery firm rumored to have won the job, had a trailer parked outside 55 Water St. yesterday. When asked about a contract with Goldman to recover $70 billion in bearer bonds, Belfor spokeswoman Alex Gort said, “We have very strict confidentiality.”

Belfor workers at the site yesterday described a “complete restoration job” under “very high security,” but claimed to know nothing about the bonds.

“There are three vaults,” a hardhat said outside the building. “I wasn’t in the vault where the bonds are. Security is very tight down there. I know they were all under water. Billions of dollars’ worth, soaked. I know they are trying to pack them up.”

Bearer bonds are paper certificates, usually issued by governments, that are redeemable after a prescribed term. The bearer submits an attached coupon to receive payment. Because they are typically unregistered and can be used like cash, they were commonly used by those wishing to hide, and not pay taxes on, assets. They were banned in 1982.

But those that haven’t been fully redeemed remain in circulation.

Andrew Kintzinger, a securities lawyer, said that if a Wall Street firm were holding bonds as a custodian for investors, there would be electronic records documenting payments that would provide investors with proof of ownership.

But if Goldman or the other banks owned the damaged bonds themselves, redeeming them could be “a problem,” he said.

http://www.zerohedge.com/news/2012-11-15/dtcc-provides-update-status-flooded-securities-vault

DTCC Provides Update On Status Of Flooded Securities Vault

Submitted by Tyler Durden on 11/15/2012 17:32 -0500

• Bond
 
• default
 
• New York Stock Exchange
 
• recovery

As has been widely reported previously, while the NY Fed's deep underground gold vault remained dry during the Sandy flooding in downtown NY, one institution which got badly hurt was the DTCC, aka Cede & Co (profiled here in July of 2009 in " The Biggest Financial Company You Have Never Heard Of"), which is the entity serving as custodian of virtually every electronically traded security in the modern marketplace (equity, debt, derivative, synthetic, in fact anything which is not a physical asset in itself and is not in the hands, or safe, of the rightful owner). We put the emphasis onelectronically, because DTCC is also the actual custodian of all physical proof of stock ownership, such as certificates, bond deeds, and the like. It is the largely irrelevant latter (because it has been several decades since anyone actually demanded a physical copy of the stock certificates backing their shares of company XYZ) that the DTCC got in trouble for when its securities vault got flooded, and in the process destroyed countless physicalstock certificates. Note we did not use the word electronic because those are there and accounted for in numerous back up data sites, with full designation and attribution. In other words anyone who made a mountain out of this particular mole hill sadly has no idea how modern markets operate, since all that the DTCC needs to do to remedy the flooding damage is to notify transfer agents of this natural disaster, and then have duplicate stock certificates printed at a cost of 1 cent for every thousands or so print outs. Which is more or less what the DTCC also just said in its press release.

DTCC Statement on Condition of Securities Vault

NEW YORK--(BUSINESS WIRE)--The Depository Trust & Clearing Corporation (DTCC) has begun the initial phase of recovering the contents of its securities vault. Our analysis of the condition of the vault, once we were able to open it, was that significant flooding and water damage occurred throughout the facility. While it is premature to determine the full extent of the damage, it is essential to begin the restoration process to avoid further deterioration.

DTCC has retained highly-recognized, well-respected disaster recovery and expert restoration firms to work with on this important effort in order to carefully and diligently address the challenges resulting from the damage caused by Superstorm Sandy.

DTCC expects to have a more accurate assessment of the condition of the physical securities within a week’s time. It is too early to determine how many of the physical certificates can be restored. The restoration process will take some time, possibly months.

DTCC maintains a robust certificate inventory file with ownership information that can be replicated from our multiple data centers. The company’s computer records are fully intact, including detailed inventory files of the contents of the vault. This effort is more of an administrative and logistical challenge than an economic issue. DTCC is engaged in active discussions with representatives of various transfer agents for the purpose of establishing a protocol for the issuance of replacement certificates, without requiring the presentation of the original certificates.

Cataclysm averted.

Or maybe not. Because at the end of the day, it is not whether or not the physical stock certificate for a given holding was damaged in the flood. What is far more troubling, and has been since the advent of Cede & Co as master custodian, is that regardless of the content of its securities vault, it is the DTCC that is the rightful and ultimately legal owner of every security. Or would be in case Cede & Co decided to make it a legal matter of assigning ownership: good luck in a legal battle with a company that is owned by every major financial institution  in the US(including Goldman, JPM, the NYSE and of course, the Fed).

In other words, it was not DTCC's flooding that was the issue: that is largely irrelevant. It is the fact that DTCC, and its "partnership nominee" exist, and that they are in effect, the default custodians of every transaction. Because if the day comes when all securities-based property has to be "sequestered", all that would be needed is one quick phone call to DTCC and it's done and done.