Margin calls can ruin a portfolio when the bills come due. This from WSJ Wealth Advisor:
Loans backed by investment portfolios have become a booming business for Wall Street brokerages. Now the bill is coming due–for both the banks and their clients. Some lenders, including Bank of America Corp., are issuing margin calls to clients after the global market drubbing of the past week, forcing investors to choose between either putting up more money or selling some of the securities underlying the loans, writes Wealth Adviser at WSJ.com. Banks, meanwhile, are likely to take a hit to a key profit source if investors pull back from these loans as many expect. “Your largest wealth creator for the top end has been inflation in financial assets. You’re now seeing wealth destruction,” says Charles Peabody, a bank analyst at Portales Partners LLC. Even including Wednesday’s stock-market rally, the Standard & Poor’s 500 Index is down 5.8% in the year to date.
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