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NYC blocks deal with UBS
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October 10, 1997: 1:52 p.m. ET
Comptroller denies Swiss bank chance at $1 billion letter of credit
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NEW YORK (CNN) -- New York City's top financial officer has cut one of Switzerland's largest private banks out of a loan opportunity, one of the few punitive U.S. government actions against any Swiss bank over dealings with Nazi Germany during World War II.
New York City's Comptroller, Alan Hevesi, has denied Union Bank of Switzerland -- the country's largest commercial bank -- the chance to provide a routine letter of credit to back up city borrowing of $1 billion.
This borrowing is currently needed for cash flow purposes because the city has to pay its bills before expected government aid comes through. In this case, the city is waiting for federal education and welfare payments.
"We choose not to expand our business with them," said David Neustadt, the spokesman for Hevesi. "This is very limited. We have not chosen to cut off all our business with them," Neustadt said.
UBS stood to gain a large share of the $1.3 million fee to be earned from arranging the financing and issuing this latest letter of credit.
"Doing business with the city of New York is important to us," said Richard Capone, chief operating officer of UBS in the United States.
"We hope and expect there will be other opportunities for us to participate in future financings," Capone said. He emphasized that UBS has done business with the city for more than 20 years, including providing billions in credit support to help the city out of bankruptcy in 1975.
"We were not looking for an opportunity to deprive them of business, but when confronted with the question 'do we expand it or wait?', we chose not to expand it," said Neustadt, the spokesman for the city comptroller. The city continues to use UBS for overnight cash investments, and UBS is involved in three other letters of credit for city loans.
"We have not cut off all relationships with the bank," Neustadt said.
New York City's budget is $33 billion a year, of which $4 billion is loaned in this form of "cash flow" borrowing. Another couple billion dollars are borrowed through long-term bond issues. The short-term financing is sought only a few times a year. The city also seek letters of credit to assist its bond issues. In essence, the city is selling notes to investors. If something drastic happens to the city's finances, the notes act as a kind of insurance policy to pay its bills.
A decision hasn't been made whether or not the city will expand its business with UBS in the future.
UBS is one of three leading Swiss banks financing a special $100 million fund for needy Holocaust survivors.
Prior to the establishment of that fund, and other Swiss steps toward reconciliation over the "Nazi Gold" issues, the New York City Council and the New Jersey State Legislature considered action to withdraw government business with the banks.
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