Friday, 25 July 2014
Last updated 16 hours ago
Apr 20 2010 | 6:52pm ET
Goldman Sachs took the unusual step yesterday of opening its first-quarter earnings conference call to the public. But the good news—the Wall Street giant took in $3.46 billion in profit, up 91% from the year earlier period—was all but ignored in favor of the continuing fallout from the Securities and Exchange Commission’s lawsuit against the firm.
The regulator alleges that the firm misled investors about a collateralized debt obligation it structured and marketed for hedge fund Paulson & Co., hiding Paulson’s role in selecting the securities contained in the deal and its intention to short the CDO. But Goldman executives forcefully reiterated their denials of any wrongdoing.
“We would never intentionally mislead anyone, certainly not our clients or counterparties,” general counsel Gregory Palm said. “We certainly had no incentive to design a transaction that was designed to lose money.”
Palm also took aim at the SEC’s contention that Paulson, which was not charged with any wrongdoing, had played a big role in picking the residential mortgage-backed securities that were included in the CDO.
“The portfolio here was not selected by John Paulson,” Palm said. “The portfolio was selected by ACA” Management, a third-party and major investor in the CDO on the long side. Goldman CFO David Viniar offered another side of Goldman’s defense, noting that ACA and the other investors in the CDO were sophisticated enough to know what they were doing.
Still, the Goldman executive responsible for structuring and marketing the CDO, Fabrice Tourre, has been put on indefinite paid leave. Tourre was also named in the SEC’s fraud suit.
Meanwhile, Goldman CEO Lloyd Blankfein has spent some time dealing with internal damage control, leaving to firm-wide voice mails to staff, acknowledging that the situation was “uncomfortable.”
Uncomfortable and potentially expensive: According to Bernstein Research, the lawsuit could wind up costing Goldman more than $700 million over the next few years. Investors lost about $1 billion on the CDO deal.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…