Goldman Sachs

UBS is selling its over-the-counter commodity derivatives portfolio to JPMorgan, prompting John Carney to say this:

Here’s a good rule of thumb. When one bank buys a business from another bank, it’s almost always a case of regulatory arbitrage. It’s never really because of synergies or managerial talent or whatever other hokum the media relations churn out to their willing dupes in the press. It’s just about one bank being better able to take advantage of the rules.

So even though the rationale for JPMorgan Chase buying the over-the-counter commodities derivatives business of UBS remains mysterious, you can safely surmise this is regulatory arbitrage. Most likely, it’s got to do with capital requirements.

Umm maybe? I don’t know, this question seems a little over-determined; the thing is that pretty much everyone thinks that (1) JPMorgan is pretty good at running an investment bank, the occasional hiccup aside, and that (2) UBS is pretty crap at doing so. So are US regulators relatively more comfortable with JPM managing this portfolio than Swiss regulators are with UBS doing so? Sure, probably, but probably so are the respective shareholders, and counterparties, and senior managements, and anyone else you might ask. Really moving any portfolio of anything from UBS to JPMorgan is probably Pareto optimal.

The light irony comes from – well here is Bloomberg’s first sentence: Read more »

To help inject humor into what was an otherwise intense process, Ms. Rhett said she and other jurors compared the lawyers’ likenesses to actors. “I’m only going to say that there was someone who looked like Dan Aykroyd, someone who looked like Kevin Spacey and someone who looked like a cross between Patrick Stewart and Stanley Tucci,” she said. But when it came time to consider the seven claims against Mr. Tourre, they moved methodically and efficiently. The group chose 52-year-old Steven Zucker, a former retail broker on Wall Street who is now co-dean for art and history at the Khan Academy, a nonprofit educational organization, to be foreman. The jurors devised rules, and Mr. Zucker would call on people to speak. The jurors strove to begin on time every morning and worked through lunch, which consisted of sandwiches of grilled chicken and ham and cheese, in addition to soda and leftover muffins from the morning. [WSJ, earlier]

Poor Fab, but it could be worse. Michael Lewis has a heartbreaking, enraging story in Vanity Fair about poor Sergey Aleynikov, the former Goldman programmer and current Dostoyevskyan holy fool who was sentenced to federal prison for eight years for stealing computer code from Goldman, won a complete victory on appeal, was released, has lost his life savings, and is now being prosecuted under state law just because Goldman, or someone, but probably Goldman, really hates him. It is troubling stuff not least for Lewis’s clear implication that a jury trial may not be the best way to arrive at the truth regarding complex financial-technological questions. E.g.: Read more »

  • 31 Jul 2013 at 6:26 PM

SAC Capital Better Than Okay In Gary Cohn’s Book

Goldman Sachs President Gary Cohn said his firm continues to do business with SAC Capital Advisors LP, the hedge fund that was indicted on charges of insider trading last week. “They’re an important client to us, they have been an important client to us,” Cohn, 52, said today in an interview on CNBC. “We continue to trade with them, and they’re a great counterparty.” [Bloomberg]

*DJ Gasparino: Goldman Sachs President Gary Cohn Fully Aware I Can Fight Like Mike Tyson In His Prime, If I So Chose

*DJ Gasparino: What I Lack In Height, I Make Up For In Having The Wingspan Of A Pterodactyl

*DJ Gasparino: Cohn Knows Gasparino’s Reach Is So Formidable He Could Be Eating A Slice On Arthur Avenue And Knock The GS Prez Out In Midtown

Read more »

  • 24 Jul 2013 at 10:53 AM

Fab Tourre’s CDO Deal Wasn’t Complicated Enough

If you wanted to short the housing market in 2007 you could just buy protection on mortgage-backed securities via a synthetic CDO, and that’s what John Paulson did in the Abacus deal, for which Goldman Sachs and Fab Tourre got in trouble. But the problem with that is that buying protection costs money; just for instance the super-senior protection in Abacus would run you about 50bps, or around $4.5 million a year on the $909mm notional that ACA Capital wrapped.1 And who wants to throw away millions of dollars a year waiting for the housing market to crash?

So another way to short the market is to buy a lot of protection on senior tranches of CDOs (cheap because: what are the odds that the housing market will crash?) while also selling a little protection on junior tranches (expensive because the odds that there’ll be some defaults are higher). If you do this, you can have a positive carry (you get paid as more each year on the protection you sold than you pay on the protection you bought), but you can make just about as much money if the housing market craters and there are massive defaults. (The tradeoff is that if performance is mediocre, with some defaults, then you lose money on the junior protection you sold and don’t make it back on the senior protection you bought.)

This second trade is a very stylized description of what Magnetar did,2 in another CDO deal for which JPMorgan got in a bit of trouble. Less than Goldman, though! Read more »

Let Us Now Praise Goldman Sachs

Don’t hesitate to take your turn. Read more »