Citigroup Drove Puerto Rico Into Debt. Now It Will Profit From Privatization on the Island.

Citigroup Drove Puerto Rico Into Debt. Now It Will Profit From Privatization on the Island.

“Citigroup repeatedly sold Puerto Rico and PREPA in particular predatory forms of debt that pushed the island deeper and deeper into unsustainable levels of debt.....Banks screwing things up and saying they’re going to come in and fix it is quite common. You have a list of approved underwriters and they become de facto advisers. So they make bad deals that go badly, but then are at the top of the list to clean them up.”

Big banks like Citi and Santander have been adroit about their dealings in Puerto Rico, insulating themselves from some of the risks shouldered by hedge and mutual funds. Investment banks don’t tend to own all that many Puerto Rican municipal bonds directly, instead making most of their money on the island by underwriting debt and collecting huge fees during restructuring agreements, putting their staffs to work figuring out ways to do more of the above. “The role banks have played is to constantly push the island to keep restructuring and refinancing its debt. Their interest isn’t based in holding the debt, but in making money off the fees they get for doing the deals,” Bhatti told The Intercept. The profit is in the churn.