Monday, January 19, 2015

Squid suckers

From another excellent installment by the Wall Street Journal (free link) on the Goldman Sachs Banco Espirito Santo loan imbroglio --

Goldman says it managed to sell some of its exposure to the Oak Finance loan to investors, including pension funds. ... On Dec. 23, Novo Banco made a surprise announcement: The Bank of Portugal had informed it that Oak Finance would remain in the “bad bank” that the central bank is winding down, virtually guaranteeing the loan won’t be fully repaid. The reason: A Portuguese law passed in August said that anyone owning more than 2% of a bailed-out bank’s shares must go to the back of the queue for any debt repayments. Goldman’s 2.27% shareholding in July triggered that provision, the Bank of Portugal concluded. The decision stunned Goldman executives, who only learned of it when they read it in the Portuguese media on Christmas Eve. Goldman disputed the Bank of Portugal’s legal interpretation, noting that it was buying the shares for clients, not for the bank’s own account. 

So Goldman Sachs clients in this period were being sold pieces in a dodgy loan, or shares in a dodgy bank. The Irish Department of Finance might want to reflect carefully on its recent boasting that Goldman is doing the advisory on the AIB disposal pro bono.