H2O Bans Trades With Cantor in Tit-for-Tat Over German Financier

(Bloomberg) -- H2O Asset Management has blacklisted Cantor Fitzgerald, backing a controversial financier in a feud with the U.S. brokerage.

H2O told employees not to trade with firms including Howard Lutnick’s Cantor and its sister company BGC Partners, according to a July 17 memo seen by Bloomberg News. The message didn’t specify a reason for the ban. Affiliated brokers GFI and Aurel are also covered by the decision, according to the memo which instructs employees to “strictly respect” the ruling.

The move came one day after Bloomberg reported that Cantor had broadened a four-year old block on dealings with German businessman Lars Windhorst. Cantor’s blacklist didn’t include H2O, the largest holder of securities issued by Windhorst’s companies. H2O suffered 8 billion euros ($9 billion) of withdrawals over three weeks amid concerns about the liquidity of those holdings.

Officials at H2O and Cantor Fitzgerald declined to comment on the memo. A spokesman for Windhorst’s Tennor Holding also declined to comment.

Cantor instituted its ban after a bad repo trade left it holding bonds issued by Windhorst companies, according to two people familiar with the matter who asked not to be identified discussing private information. The trade with Cantor was subsequently settled, the people said.

Windhorst has financed much of his business empire by selling bonds that are rarely traded, which means they can be hard to liquidate by an asset manager needing to keep pace with client redemptions during a downturn.

H2O saw a surge in withdrawals after Morningstar Inc. put one of its funds under review in June citing its holdings of illiquid securities. The firm had 1.4 billion euros tied up in non-rated bonds issued by companies linked to Windhorst out of more than 30 billion euros in total assets. H2O said in June that Windhorst “has proven to be a reliable business partner.” It has since reduced some of its exposure to non-rated bonds.

At least one other firm has also prohibited dealings with Windhorst over failed trades.

San Francisco-headquartered BTIG stopped its brokers from trading securities with Windhorst for a decade after a botched transaction, according to two people familiar with the matter. A spokeswoman for BTIG declined to comment on whether the ban is still in effect.

To contact the reporters on this story: Luca Casiraghi in London at lcasiraghi@bloomberg.net;Will Hadfield in London at whadfield@bloomberg.net;Lucca de Paoli in London at gdepaoli1@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, ;Shelley Robinson at ssmith118@bloomberg.net, Abigail Moses, Chris Vellacott

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