Chicago’s Troubled Schools Made Wall Street $110 Million

The Chicago Board of Education was desperate for cash. Two Wall Street players were willing to lend it — at a price.

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 needed the money to replenish its dwindling coffers before the new school year and to build and repair facilities.

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’s 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.

“We took a period of market risk on behalf of our client when they needed it most and the market has recognized their improved financial position,” a J.P. Morgan spokeswoman said.

Read on.

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