hypothecation

[thegoose]

i have my hypo through bank of america.....which is tied to libor...........are there any banks out there tied to the prime rate..........my libor last month was 5.95.........thanks for any help

[UpstateNYUPSer]

I would suggest that you Google that and see what your results would be. I will admit that I am not familiar with most of the terms that you used, specifically hypo and libor.

[Channahon]

Call the Bank of America to discuss your concern. In the meantime, take Upstates advice and research the internet.
Good luck

[satellitedriver]

Originally Posted by thegoose

i have my hypo through bank of america.....which is tied to libor...........are there any banks out there tied to the prime rate..........my libor last month was 5.95.........thanks for any help

Sorry, I don't understand the question.
The libor reference I know, but I do not understand "hypo through bank of america".
As far as I know all banks are tied to the prime rate.
The rate a lender receives depends on their credit history.
Please expound on your question.
PAX

[satellitedriver]

I googled, hypothecation.(new word for me)
What are you borrowing against?
PAX

[ups75]

Satellite, You are borrowing against you UPS stock.

[DiadDude]

Hypothecation in UPS terms is pledging your UPS stock as collateral to secure a loan. The borrowed amount is then often used to purchase more UPS stock which can then be hypothecated again and again and again.

This is the main method in which UPS management formerly made large sums of cash. This method is less profitable now that UPS is publicly held because the amunt you can borrow against your stock is considerably less than it used to be.

[rod]

who in their right mind would take UPS stock as collateral now days

[ups79]

Originally Posted by rod

who in their right mind would take UPS stock as collateral now days

Any franchise owners of a Hardee's resturant. Right central Illinois management?

[local804]

Hypothecation was a very well used word before the ipo at UPS. It was a word often used by the management. 33,000 millionaires at ups after the ipo if I am not mistaken, hypo was a big part of it.

[over9five]

See? You do learn stuff here!

[walterCronkite]

Originally Posted by thegoose

i have my hypo through bank of america.....which is tied to libor...........are there any banks out there tied to the prime rate..........my libor last month was 5.95.........thanks for any help

This roving reporter has found that the Current LIBOR rate is:

Current Libor etc.

LIBOR - 1 Mo3.774%-0.128%LIBOR - 3 Mo3.720%0.003%LIBOR - 6 Mo3.490%-0.184%LIBOR - 1 Yr3.084%-0.184%Fed Prime Rate6.50%-0.75%Treasury - 10 Yr3.66%-0.08%Treasury - 30 Yr4.25%-0.07%12 MTA4.522%-0.140%COFI-11th District4.172%-0.061%COSI4.900%0.110%

as of 23-Jan-08 09:41 ET
sources: DTN, FHLBSF, Federal Reserve
© theFinancials.com

In addition you are probably paying a premium over the curent LIBOR rate. It is not an advisable strategy these day since it is similar to taking out a second mortgage. In the old days, the BOD made sure that the price of the collateral, UPS stock, did not go down. The game ended when UPS went public (WHY? I don't know). And that is the way it is.

[helenofcalifornia]

OK. You guys know what you are talking about evidently. Can you translate the question into basic kindergarten financial talk? This guy wants to borrow money from a bank with his UPS stock as collateral? Is that right? And what are those funny words? What do they mean? I thought the guy was a foreigner speaking English as his second language.

[UpstateNYUPSer]

Yes, please explain it to us in little words as I have no clue what you are talking about.

[beentheredonethat]

A hypo is short for hypothecation loan. Which from the dictionary is "The pledging of securities or other assets as collateral to secure a loan" In this case it was UPS stock that was the collateral. In the past before the IPO, banks would loan up to 80% of the value of the stock and at a very reasonable interest rate. As was mentioned before, if you had $100,000 in UPS stock you could in theory, borrow up to $80,000 against that stock and many people did and bought another $80,000 of stock, which could again be hypo'ed. In the end you could end up with $500,000 in UPS stock and a debt of $400,000 to the bank with your original $100,000 worth of stock. The two loan rate mechanisms were either based on the Prime rate or the LIBOR - which stood for London Interbank Offered Rate. The more you borrowed the lower the interest rate. The good part is that usually the dividend from the $500K in stock would cover or mostly cover the loan on the $400K. If it didn't then the rise in the price of stock could help to cover the loan. The banks liked the UPS stock when it was private, since it knew the price didn't fluctuate like it did on the open market. For people who did this when interest rates were low and the stock was growing they made a good amount of money. Unfortunately I wasn't one of those. Too chicken I guess to go into such debt.

[moreluck]

Ok, you're sitting on all kinds of UPS stock, but have no ready cash to speak of. Paper rich, cash poor.

Prior to IPO, certain banks would make a loan (hypothication loan) using your UPS stock as collateral. They hold the stock, but you still collected dividends on it.....you just couldn't sell it while it was hypo'ed.

You got your $$$ that you needed for whatever reason......like buying additional UPS stock or downpayment on house or cash for a new car, whatever. Then you have to pay back the loan with some interest.

You didn't want to sell your stock....first, because it was discouraged and second, because of the capital gains taxes you would owe.

So, you could get cash, and still collect your dividends and just make payments on your loan and get your stock back when the loan is paid off.

It's just that the paper (stock), although worth a lot was worthless in it's paper form.

Through hypo'ed stock, years ago we were able to secure 13 rental properties as an investment. Got the benefit of that real estate doubling in price, selling it off and repaying the loan and having a hefty profit from the sale of that property.

Get it ??

[cheryl]

Hypo loans are a commonly used tool among people that own lots of UPS stock. You can borrow money at a great interest rate and banks love UPS stock because, although it hasn't been a high flyer, it retains it's value.

[UPS Lifer]

I can recall when the interest rates were really low my hypo dropped to 1.82%. Just about anywhere you took your money you could make money! It was great! I was making 6% net on the loan....Obviously those days are gone!

You have to be careful of over-leveraging your position. Now that UPS can drop $10 in one day - the bank can put you on notice and ask for additional stock as collateral to bring your position to the required margin (now it is about 60% of loan to stock held). So if you have a $600K hypo you will need to tie up $1 million plus in stock. ... Or the other scenario is to have your loan called in.

The last scenario can really hurt your position if the bank sells your stock to pay off the loan especially if you have a high capital gains situation. You would be forced to pay the gains to the IRS and your state (depending if your state requires that).

There is another program that BofA offers called STARs....but you have to have at least 1 million in stock to participate. This is very simply stated but the program is a forward sale of your stock. You lock in the current price and get approx 79% of that now with no immediate tax consequence - if in 3 years the stock jumps up to a predetermined ceiling price you share in the upside at the time of sale. Your CG becomes due for the tax year you sell in but you might have a nice upside to help pay the CG. If the stock drops to say $20 a share you lose nothing more. You have already received the discounted portion which is what BoA takes for the risk. You can even set the dividend amount that you want to receive over that time period. The stock still shows that it is yours but it is in a type of custodial account. You have no more rights to the stock until the contract is up and the current price of the stock is determined. ...but don't forget..you already have the money just no capital gains to pay until April of the following year after the end of the contract.

The way BoA makes money is they short sell and buy and make a minute % everyday on a large block of UPS stock (or some other blue chip stock). You can't do this with just any stock...but UPS is considered a blue chip stock so be glad you own it!

NOTE: This program is not for everyone. You need to be bullish on your stock and feel that it will go up. If you still curious about the program get with a BoA Investment VP and your CPA. It definitely has an upside and a downside. The program can be customized to fit your needs based on shares - future time of sale - and if you want to receive a defined dividend.

[satellitedriver]

Originally Posted by over9five

See? You do learn stuff here!

I'm with you.
Now that I've read the posts, I am glad that I am not that Machiavellian with my finances.
Probably would be richer for it, but it just ain't me.
PAX

[UpstateNYUPSer]

Satellite, I'm with you. Call me conservative, but I'll stick with my 401k and savings accounts.

[airbusfxr]

Most pilots and mechanics got out of the hypo deals after the Nov 99 IPO. I think you waited way to long to get out. The hypo was for buying stock when it was at the correct value. Someone should have warned you back in 99, sorry.