Home
Forums
New posts
Search forums
What's new
New posts
Latest activity
Members
Current visitors
Log in
Register
What's new
Search
Search
Search titles only
By:
New posts
Search forums
Menu
Log in
Register
Install the app
Install
Home
Forums
Brown Cafe UPS Forum
UPS Discussions
hypothecation
JavaScript is disabled. For a better experience, please enable JavaScript in your browser before proceeding.
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an
alternative browser
.
Reply to thread
Message
<blockquote data-quote="beentheredonethat" data-source="post: 293715" data-attributes="member: 4886"><p>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.</p></blockquote><p></p>
[QUOTE="beentheredonethat, post: 293715, member: 4886"] 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. [/QUOTE]
Insert quotes…
Verification
Post reply
Home
Forums
Brown Cafe UPS Forum
UPS Discussions
hypothecation
Top