NEWS/ANALYSIS: Goldman Sachs

NEWS

Goldman Sachs’s golden boys to testify [Telegraph]

The two Goldman Sachs traders who delivered a $4bn (£2.6bn) profit for the bank from betting against sub-prime mortgage bonds are to be grilled as a key Senate committee turns its focus on the bank’s trading pratices. Michael Swenson and Josh Birnbaum will testify on Tuesday as part of a Senate hearing where current and former Goldman employees will be questioned about their role in the mortgage-backed securities market and how it triggered the financial crisis. [READ THE REST]

Below the fold: the bank industry’s revolving door culture with the UK and US governments, Fabrice Tourre’s half a million bonus, Goldman Sachs’ fees bonanza from UK privatisations, insider trading allegations at Lloyds, the Raj Rajarathnam tip-off, and the continuing confidence of Warren Buffet and BayernLB.

Goldman Sachs under fire over role in Lloyds cash call [Deborah Hyde, CityWire]

US investment banking giant Goldman Sachs is facing more fire today after reports that the terms of the Lloyds capital raising last year were altered after a last minute request from Goldman’s investment team.

A manager that invests the bank’s own money demanded last minute changes to the terms of the £23.5 billion bond part of the cash call.  The change was implemented and benefited the bank’s position as a bond investor, the Financial Times reported. Goldman Sachs said the bank ensures different departments are unaware of what each is doing and cannot influence each other. But today’s claims highlight the conflicts of interest at the heart of the investment banking model.

Given the government owns a 41% stake in Lloyds, the news adds further weight to calls earlier this week that the government should sack Goldman Sachs as an adviser after the US regulator announced it is bringing fraud charges against the bank. [READ THE REST]

Another ‘Bad News Friday’ For Goldman Sachs [WSJ]

The agony keeps on piling on Goldman, as the firm continues to take hits from all comers. The Wall Street Journal is reporting that the US government is thought to have been probing whether Rajat Gupta, a Goldman Director who is standing down from the firm’s board next month, may have tipped off Raj Rajarathnam, the man accused of orchestrating a huge insider trading ring, about Warren Buffett‘s $5bn investment in Goldman before it became public in 2008. [READ THE REST/see also/see also.]

Goldman to pay Tourre bonus despite fraud charge [Telegraph]

The investment bank is standing behind its 31-year-old trader despite the allegations he sold a product that was designed to fail without fully briefing investors of the facts. Goldman and [Fabrice] Tourre are facing civil claims from the US Securities & Exchange Commission, the US financial industry‘s top watchdog…

Goldman is expected to disclose in its first-quarter trading update today that it has set aside $5.5bn (£3.6bn) for pay and bonuses for staff. Although individual bonuses are not decided until the beginning of next year, it puts the bankers on course for another year of bumper payouts – including Mr Tourre.

Mr Tourre, who has taken some time off during the controversy, is a vice-president at Goldman, a middle-ranking level that falls just short of the compensation levels paid to managing directors and partners. However, vice-presidents in structured finance can expect to earn £100,000-£200,000 in salary and a bonus of £500,000 in a good year.[READ THE REST]

Goldman Sachs should be suspended from working for the Government until the outcome of a fraud case brought against the investment bank by US regulators is known, opposition politicians said yesterday.

Goldman Sachs’ UK privatization fees bonanza [Independent]

The demand from the Tories and the Liberal Democrats came as the Financial Services Authority (FSA) began an investigation into the Wall Street giant’s operations in London. Goldman Sachs is on a rota of investment banks that advise the Treasury about debt issuance, which has risen dramatically as the budget deficit has escalated.

Goldman is also keen to be involved in a potential fees bonanza from the privatisation of Northern Rock and the state’s interests in Royal Bank of Scotland and Lloyds Banking Group, together with a rash of sales of state assets including the Tote bookmaker, the Student Loans Company and the Channel Tunnel rail link. [READ THE REST]

Buffett Has ‘Great Confidence’ in Goldman Sachs [Bloomberg]

Berkshire Hathaway Inc.’s Warren Buffett, who injected $5 billion into Goldman Sachs Group Inc. in 2008, remains comfortable with his investment after regulators sued the bank for fraud, said Berkshire Director Thomas Murphy. [READ THE REST]

Banking giant Goldman Sachs urges clients to stay with them despite fraud charges [Investment International]

One of the world’s most successful banks, US Goldman Sachs Group, is urging clients not to desert its business as it faces fraud charges over allegedly misleading sub prime mortgage products. The giant Wall Street bank is facing allegations from the US Securities and Exchange Commission over the way it structured and marketed a product tied to subprime mortgages. Its chief executive, Lloyd Blankfein, is also due to testify before a US Senate subcommittee next week to testify about the role of investment banks in the subprime mortgage disaster. [READ THE REST]

BayernLB to keep most business ties with Goldman [MarketWatch]

German bank BayernLB has cancelled one consultancy agreement with Goldman Sachs Group Inc.(GS 159.05, +0.12, +0.08%), but it will maintain its business relationship with the American investment bank, a BayernLB spokesperson told MarketWatch on Thursday.[READ THE REST]

COMMENT

Goldman Sachs and the left [Robert Costa, National Review]

With former senior aides to Obama, Rep. Barney Frank (D., Mass.), the chairman of the House Financial Services Committee, and other Democrats on its payroll, Goldman isn’t fretting about DeFazio and company. As Timothy Carney of the Washington Examiner reports, four of the five in-house lobbyists at Goldman were Democratic staffers on Capitol Hill, with the remaining one a contributor to Hillary Clinton’s presidential campaign. Directing Goldman’s Washington shop is Michael Paese, Frank’s former go-to committee staffer, who had responsibility for committee policy related to the banking, securities, and insurance industries. One of Paese’s deputies is Ken Connolly, a veteran of the Senate Environment and Public Works Committee. And this week, Paese’s bosses enlisted Greg Craig, Obama’s former White House counsel, through the law firm Skadden Arps, just days after Goldman was charged with fraud by the SEC.

The relationship between the government and Goldman is fluid and open. Frank’s staff, for one, is a training ground for big-banking lobbyists, and Goldman remains a soft landing spot for supportive ex-officials and former policymakers. Peter Roberson, who worked on the Boston congressman’s capital-markets team, recently left the House Finance Committee’s staff to join the world’s top clearinghouse for over-the-counter derivatives. Frank himself admits that the revolving door is unseemly. After Roberson quit, Frank publicly criticized him, a little tantrum to hide bigger problems.

Over on Pennsylvania Avenue, the White House has friendships with many senior Goldman lobbyists outside of the bank’s immediate team of Washington operatives: former House minority leader Dick Gephardt; Janice O’Connell, a former adviser to Chris Dodd (D., Conn.), the chairman of the Senate Banking Committee; and former Tennessee congressman Harold Ford Sr., to name a few. Another Goldman-enlisted Washington warrior is Steve Elmendorf, John Kerry’s deputy campaign manager in 2004. Prominent Republicans, of course, are also part of the operation, with Ken Duberstein, a Reagan White House chief of staff, and Eric Ueland, former chief of staff to Bill Frist, the former Senate majority leader, on board. Altogether, the bank employs 41 lobbyists and 13 outside firms.

According to the Hill, Goldman has devoted $18 million over the last decade to lobbying members of Congress and “millions more to contributing to lawmakers’ campaigns.” It’s an immense, sprawling operation, buoyed by countless buddies inside the Obama administration, as detailed by Michelle Malkin earlier this week. Senior officials such as Mark Patterson, Tim Geithner’s chief of staff, are former Goldman lobbyists. Patterson, in fact, had Paese’s position before Paese.

Analysis by the Christian Science Monitor shows that Goldman increased its lobbying by more than 70 percent over the past year, spending $2.8 million in the process, and it doesn’t end with Goldman. According to Public Citizen, a Washington, D.C., watchdog group, 940 former public officials are now registered lobbyists on behalf of banks and investment houses. The Center for Responsive Politics counts 56 former congressional aides on the Senate and House Banking Committees who went on to lobby for the financial sector. For Goldman, the intermingling is policy. A company insider tells Politico that the firm’s Washington operation is “a very conscious, long-term effort that is very deliberate and is intended to address this two-pronged need of understanding the political process and understanding our business.”… Since 1990, according to OpenSecrets.org, Goldman has donated over $31 million to political-action committees and candidates, with 64 percent of those donations going to Democrats. [READ THE REST]

The intersection of K and Wall [Washington Examiner]

The [banking] industry’s main Washington lobby is the Securities Industry and Financial Markets Association, run by Chairman Thomas Nides, a Democratic revolving-door veteran. Nides gave the maximum to Obama in both the 2008 primary and general election, plus $2,000 to Obama’s Senate campaign, and in recent elections he gave $2,000 to Joe Biden and $5,000 to now-White House Chief of Staff Rahm Emanuel.

The American Bankers Association retains the Democrat-heavy firm Glover Park Group, which just hired Grant Leslie away from Obama’s Agriculture Department.

At Goldman Sachs, the nation’s largest investment bank, four of the five in-house lobbyists were Democratic Capitol Hill staffers — the remaining one gave $1,000 to Hillary Clinton last election. One new addition to this shop last year was Michael Paese, recently the top staffer for Rep. Barney Frank’s Financial Services Committee. Paese gave Obama $500 in 2008.

JP Morgan’s influence division is more bipartisan, but there are still plenty of bona fide Democrats there, such as Senate Banking Committee alumnae Naomi Camper and Katherine Childress.

General Electric is another finance giant, and it is a leading player in the lobbying scene (GE was No. 2 in lobbying spending in 2009, and No. 1 over the last decade). To lobby on financial regulation, GE retains the Raben Group, perhaps the leading K Street advocate of liberal causes — the Human Rights Campaign, NAACP, Center for Reproductive Rights and ACORN are all Raben clients. Founder Robert Raben was counsel to Frank and assistant attorney general under Bill Clinton.

Bank of America’s K Street platoon includes the Podesta Group, whose co-founder John Podesta was director of Obama’s transition team. Podesta Group lobbyists for Bank of America include Tony Podesta (who visited the White House six times in Obama’s first eight months) and Oscar Ramirez, an alumnus of the Obama administration. [READ THE REST]

The UK’s revolving door culture [Ben Chu]

Should Goldman Sachs be sacked as a UK Government adviser in light of the charges brought against the Wall Street giant by the US Securities and Exchange Commission? Most people will probably wonder why a vested interest like Goldman was ever employed in such a capacity in the first place.

What those people don’t grasp is the symbiosis between high finance and government. In the US there is famously a “revolving door” between Washington and Wall Street. Such is the interchange of personnel that it can be hard to tell where Goldman Sachs ends and the White House begins, and we have our own version of the revolving door here in Britain.

In 2008, Gordon Brown invited Win Bischoff, a former chairman of Citigroup and now chairman of Lloyds, to co-chair a Government commission on the future of UK financial services. It came to the conclusion last May that “the international financial services sector has been a major contributor to the wider UK economy, and we envisage this remaining the case in the future”. How they must have loved that “business as usual” approach in the Square Mile. [READ THE REST]

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