CAPCO busted

Friday's NYTimes had a story on CAPCO, a captive excess insurer of deposits for brokerages. The long and short of it was that CAPCO, founded in 2003 by 12 major and minor brokerages, including Lehman, Goldman, Wachovia Securities, Morgans JP and Stanley, Credit Suisse, Fidelity, Edward Jones, Raymond James, and some smaller fish.

When I called my broker in October following the “breaking the buck” freak out, I was told that SIPC plus Capco coverage protected my shares if not their value (as if the latter were an issue at that point in time). As of February: poof goes CAPCO.

I’m not generally one for the general free for all pile on Goldman and Wall St in general thing, but it seems that, to the extent that the remaining big banks and other CAPCO participants may have $11 billion unfunded liabilities emerging from Lehman litigation, that some of the YTD profits could have been steered to a recapitalization. At the very least, we may hope that CAPCO participants are now reserving adequately against the possibility of future Lehman-related claims.

If anything, this should raise red flags for customers of Fidelity which, as a private company, is itself pretty opaque.

Humorously, there is a warning on the CAPCO site that some unscrupulous firm is misrepresenting itself as being covered by CAPCO. After Friday's article, that firm may regard its nonparticipation as a boon.