Goldman Still Needs To Explain Its AIG Exposure Goldman Sachs said it will respond on Friday to what it calls "misperceptions" about its trading relationship with bailed-out insurance company American International Group.For weeks, Goldman has been under fire amid disclosures that more than $90 billion (62 billion pounds) of taxpayer funds earmarked for the rescue of AIG, which nearly collapsed under credit derivative losses, were quickly paid out to U.S. and European banks that had purchased credit protection from AIG.
Under growing pressure to reveal more about its trading partners, AIG on Sunday detailed how much it paid out to various banks. Goldman was the largest single recipient of AIG bailout funds with $12.9 billion.
In a statement on Thursday, Goldman said Chief Financial Officer David Viniar would host a conference call with reporters to "clarify certain misperceptions in the press regarding Goldman Sachs' trading relationship with AIG."
Goldman officials were not immediately available to comment on the press call.
Critics in recent weeks have claimed that Goldman, whose alumni populate the halls of government, benefited unfairly from political connections and favouritism.
Henry Paulson, Treasury Secretary when the initial bailout was arranged last fall, had been chief executive of Goldman.
The chairman of the Federal Reserve Bank of New York is former Goldman Chairman Steve Friedman.
Goldman has insisted it did not need any bailout because it was "always fully collateralized and hedged." The bank also says it was not party to any discussions about a government bailout of AIG.
In an interview earlier this week, Goldman spokesman Michael DuVally told Reuters "our notional exposure to AIG is a fraction of what it was at the time of the September bailout."
Asked why Goldman accepted the $12.9 billion, DuVally said that because AIG was rescued by the government, Goldman did not receive money from hedges that would have been paid had the insurer collapsed. Under the terms of its contracts with AIG, Goldman said it was entitled to collateral.
more Tangled web, from 1999 article:
How the fight over going public and a banker-trader clash helped topple Jon Corzine Monday, Jan. 11, was a painful day for Jon S. Corzine, the leader of Wall Street's most prestigious investment bank, Goldman, Sachs & Co. That morning, from his unassuming office at 85 Broad Street in the heart of New York's financial district, Corzine called clients and regulators to tell them his astonishing news: He was no longer chief executive of Goldman Sachs. One call was to William J. McDonough, president of the Federal Reserve Bank of New York. ''I think he is a very fine human being and a high-quality professional,'' says McDonough, who negotiated with Corzine the rescue of Long-Term Capital Management last September. ''Personally, I will regret that I will not be able to work with him as closely as I did in his previous capacity.''
Later that morning, Goldman put out a terse press release, with the news that Corzine ''has decided to relinquish the CEO title.'' He would remain co-chairman to help with the initial public offering of Goldman's stock, which was postponed when the stock market plunged in August and September. The news about Corzine shocked the Street. Employees were ''blown away,'' says one senior manager. Securities & Exchange Commission Chairman Arthur Levitt Jr. says: ''I think he's probably as broad-gauged a leader as the industry has seen since John Whitehead.'' Some Goldman clients were equally unnerved by Corzine's demotion, with one corporate client even saying he may take his investment banking business elsewhere. ''My confidence in Goldman Sachs depends on my confidence in Jon Corzine,'' he says.
Insiders and competitors alike say Corzine was ousted in a coup within Goldman's all-powerful five-man executive committee.
Corzine was forced aside by a troika of senior bankers: his co-chief executive, Henry ''Hank'' M. Paulson Jr.; Goldman's top investment banker, John L. Thornton; and Corzine's protege, Chief Financial Officer John A. Thain. ''Everyone liked Corzine. No one likes to see someone ganged up on,'' says one insider.
Yet talk to Paulson, now Goldman's sole chief executive, and all is running like clockwork in Goldman's executive suite. Paulson insists that the changes have nothing to do with the IPO or the trading losses Goldman suffered last fall. Paulson describes the management shakeup as an ''orderly transition.'' He adds that Goldman just wanted to make these long-planned changes before the firm went public. ''We saw a window of opportunity and decided it was the best time to make that change,'' says Paulson. All Corzine will say is: ''I think this is in the best interests of the firm.''
While Paulson may quibble with the word ''coup,'' he doesn't really deny that one took place. ''A group of members of the executive committee got together and made a management decision that we think is in the best interests in terms of how we manage the firm,'' says Paulson.
Whatever Paulson wants to call it, Corzine's ouster was a dramatic departure for the world's premiere investment bank, a firm that prides itself on harmonious relations. But the move toward public ownership has brought to the fore conflicts that generally had remained suppressed. A key example is the split between the trading and investment banking divisions, with their very different cultures. Corzine is a trader. Paulson and Thornton are career investment bankers. Thain is a hybrid, working as both a banker and trader. In planning for an IPO, they knew that securities firms focused on stable revenues, including investment banking fees, are accorded higher multiples than those that rely on high-risk trading. But a huge slice of Goldman's earnings come from proprietary trading. Says one analyst:
''Embedded in the center of Goldman Sachs is a hedge fund.'' No surprise, then, that Paulson and Thornton, along with Thain, wanted to put as much of an investment banking face on the firm as possible.more (emphasis added)
John ThainInteresting:
By Leslie Wayne Published: March 18, 2009
NEW YORK: The government of New Jersey has sued former executives and directors of Lehman Brothers, contending that fraud and misrepresentation had caused the state’s public pension fund to lose $118 million.
The suit, filed in a state court in Trenton on Tuesday, contends that a ‘‘thirst for profit’’ and ‘‘simple greed’’ by the Lehman executives, including a former chief executive, Richard S. Fuld Jr., caused the firm to misstate its financial position when the state bought $182 million of Lehman shares in April and June 2008.
The purchases were made when Lehman was having trouble raising capital and attracting investors in the months leading up to its bankruptcy filing in September.
This is the second lawsuit from a government naming former Lehman executives as defendants. Because direct claims against the firm are stayed by bankruptcy proceedings, former Lehman executives have been named instead. In November, San Mateo County, California, accused Mr. Fuld and other Lehman executives of making false statements that had led to a $150 million loss in the county’s investment pool.
Gov. Jon S. Corzine of New Jersey said in a statement that ‘‘with this suit, we intend to hold Lehman executives and directors accountable for the fraud and misrepresentation that caused more than $100 million in losses to New Jersey’s pension funds.’’
The lawsuit contends that Lehman executives provided false and misleading statements about the firm’s liquidity, the value of its assets and its ability to hedge against risk.
Patricia Hynes, a lawyer for Mr. Fuld, did not return a call seeking comment.
In addition, the suit said Lehman executives had failed to disclose the company’s exposure to a rapidly declining real estate market.
Edited to date article.
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