This article makes interesting comparisons between the popularity of securities based lending and the credit crisis. Wall Street's biggest banks are once again providing super-cheap financing, which is based on assets whose value can fluctuate wildly. Securities based loans (a stock and bond portfolio) are being used for purchases of assets that can be significantly less liquid, such as real estate, fine art, or business expansion.
Securities-based lending, also known as non-purpose lending, is Wall Street’s hottest business. From UBS to Bank of America Merrill Lynch to JPMorgan, high net worth investors are being enticed to take out loans against their brokerage accounts at a blistering pace. A May 2014 article in The Wall Street Journal told the story of Jason Katz, a UBS broker who has arranged portfolio loans for 21 of his clients in the prior year, a four-fold jump from the year before. The Journal reported that portfolio lending jumped by 28% at UBS between 2011 and 2013. A contact of mine at Wells Fargo Advisors (formerly Wachovia / AG Edwards) told me they refer to these loans as their “13th month”—a reference to the 12 production months each broker has in the course of a year to generate revenues.