Goldman rejected settling of AIG trades at discount
NEW YORK (MarketWatch) -- Goldman Sachs Group rejected overtures from American International Group to settle trades with the troubled insurer at a discount, instead holding the company to the letter of its contracts, the investment bank's chief financial officer said Friday.
Goldman (GS:Goldman Sachs Group Inc
News , chart , profile , more
Last: 96.93-2.37-2.39%
3:15pm 03/20/2009
Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
GS 96.93, -2.37, -2.4%) and other large firms that were counterparties to AIG (AIG:American International Group Inc
News , chart , profile , more
Last: 1.20-0.43-26.33%
3:15pm 03/20/2009
Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
AIG 1.20, -0.43, -26.3%) have come under criticism in recent weeks, and have been accused of contributing to the insurer's collapse and subsequent government bailout.
Speaking on a conference call with reporters Friday, finance chief David Viniar was asked if Goldman Sachs felt any guilt about its possible contribution to AIG's collapse. "All we did was call for what was due to us under the contracts. So you know, I don't think there's any guilt whatsoever," he replied.
Viniar said that Goldman began to significantly mark down its Super Senior CDO risk in July 2007, resulting in valuation disputes with AIG. The investment bank continued to demand that the insurer post more and more collateral over the following year. "Over subsequent weeks and months, we continued to make calls as the market deteriorated," he added.
'We don't think we did anything wrong. We had commercial terms. It is our responsibility to our shareholders to make sure that we are protecting ourselves. That's why we enter into these contracts.'
— Goldman Sachs CFO David Viniar
"We don't think we did anything wrong," Viniar continued, explaining that "we had commercial terms. It is our responsibility to our shareholders to make sure that we are protecting ourselves. That's why we enter into these contracts. That's why we have terms in the first place, to make sure that we are protected."
As part of that protection, Goldman also apparently made trades that allowed it to profit from deterioration in AIG's financial strength -- likely based on those collateral calls.
Viniar acknowledged Friday that Goldman profited from AIG's woes. When asked if the firm made gains over the course of AIG's deterioration, he said: "Net-net, I would think we had a gain over the time. I don't think it was particularly material to Goldman Sachs. But net-net, I think we had a gain. I think that gain probably somewhat more than offset the bid-offer spread that we had to pay to put the CDS hedges on."
According to Viniar, the firm was and remains protected. He added that the firm would not have lost money from specific derivatives contracts with AIG had the insurer failed, rather than been rescued by the government.
"We have stated consistently that Goldman Sachs did not have a significant economic exposure to AIG. AIG's disclosure of cash flows to counterparties does not in any way contradict that statement," Viniar told reporters.
"We had commercial contracts with AIG. We entered into these contracts on commercial terms. We were fully hedged with either credit default swaps or collateral, so we were not in a position to take a loss," Viniar said.
He noted that Goldman continues to hold a bit more than $4 billion in collateral, supporting a roughly $6 billion open trading position with AIG.
Greg Morcroft is MarketWatch's financial editor in New York.
AI
