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City: Portfolio solid despite fund's closing

Officials say the city hasn't lostmoney and need not sell out of the Columbia fund.

By PAUL SWIDER, Times Staff Writer
Published January 16, 2008

ST. PETERSBURG 

The subprime mortgage crisis continues to have ripples at the city level.

The fallout caused some concern last month when an investment fund closed, but city officials say there's been no lasting damage to the city's portfolio.

"We've made good money on this fund," said Deputy Mayor Tish Elston about the Columbia Strategic Cash Portfolio, which stopped taking deposits after a single investor wanted $20-billion of its money from the $34-billion fund. "We've followed our investment policies. We have a number of safeguards."

When Columbia couldn't satisfy investors' demands for withdrawals, it gave them securities instead of cash. The market for those securities is weak, but they still pay 5 percent interest.

The Columbia closure came when the city had $82-million in a fund where it usually kept about $30-million, finance director Jeff Spies said. The spike came after the closure of the Florida Local Government Investment Pool amid panic from government depositors over subprime mortgage-backed investments that fund held.

St. Petersburg took $100-million from the state fund but had a limited number of allowable investments, one of which was the usually reliable Columbia, a Bank of America division.

The city had put $45-million in a Columbia fund that had averaged an almost 4 percent return since 2000, Spies said. When Columbia closed, the city took out $17-million, but $65-million remains. Though the Columbia fund is usually a short-term pocket for city money, Spies said the city will leave its money in the fund rather than pull it out and risk an unnecessary loss.

The remaining $55-million from the state fund was reinvested in bonds and certificates of deposit, Spies said. City officials can only invest in certain vehicles as approved by the City Council.

The pullout of the one unnamed investor was the trigger of Columbia's closure, Spies said, but since then, part of the Columbia investments have defaulted and another investment position is on credit watch. Columbia put up $786,000 against any St. Petersburg losses, but the most the city could lose on the defaulted investment is $627,000. The credit-watch position represents $550,000, but has been downgraded by $200,000.

The city has not lost money on investments but still could, Spies said. It could also still receive full payment or lose on a hasty selloff.

The Columbia fund is what is known as an "enhanced-cash" fund, meaning it's akin to a money market fund but with slightly higher risk and potential return. It was AAA-rated until this closure, Spies said. It represents the most risk in the city's $400-million overall portfolio.

Despite the upset in such investments, Spies got a call from Moody's Investors Service, which indicated the city's bond rating would not be affected. The city does not rely on the Columbia balance for operations so it can afford to let the investment ride.

The city's remaining Columbia investments will mature within three years, Spies said. To sell them now when they are devalued would result in a $1.7-million loss.

Spies said if nothing else goes wrong in Columbia, the city is projected to receive a 5 percent return on its remaining balance. He said some investments maturing in the next six months would pay the city $9-million in principal and interest.

Though the entire scenario is tied to market concerns over defaulting subprime mortgages, the city's Columbia holdings contain very little connected to that troubled sector. Of the $65-million balance, only 12 percent is tied to mortgage-backed securities and only 1 percent of that is in subprime.

The majority of the city's investment is in corporate bonds and British mortgages, with some also in receivables on car loans and credit cards.

Paul Swider can be reached at pswider@sptimes.com or 892-2271.

[Last modified January 15, 2008, 23:03:20]