Wall St. investors make a killing at CPS

The Chicago public school system needed money—fast. Never letting a good crisis go to waste, Wall St. investors stepped in to save the day -- and make their day.

According to a report in the Wall Street Journal, J.P. Morgan Chase & Co. and Chicago-based Nuveen Asset Management have made realized and paper profits exceeding $110 million on purchases this year of $763 million in Chicago Public Schools bonds. The school system has said it needed the money to replenish its dwindling coffers before the new school year and to build and repair facilities.

The terms of the bond sales highlight the choices the school district faces after years of pension shortfalls and relying heavily on borrowing. The 397,000-student school district struggled to sell municipal bonds in February until Nuveen bought about one-third, and the district decided in July to borrow directly from J.P. Morgan for fear that investors might balk again, a spokeswoman for the Chicago Board of Education said.

J.P. Morgan, the country’s largest bank by assets, made a 9.5% profit on $150 million in bonds it bought in July and sold in September, or 82% annualized. Nuveen, an investment firm managing $160 billion, has bought $613 million in bonds since February for a total return, including price gains and interest payments, of about 25%. That is almost 50% on an annualized basis, an especially large gain at a time of near-zero interest rates.

The school system’s bonds are a favorite for John Miller, Nuveen’s co-head of fixed income, who said the firm bought when the market feared a default, a concern he called overblown.

“At the end of day, this school system is critically important to Chicago—to the whole country really,” he said.