Can you imagine the urgency with which Goldman will now seek to emerge from under the TARP?
UBS AG, the Swiss bank which received government assistance, will stick to a policy of paying market wages after being criticized for raising salaries at its investment bank, Chief Executive Officer Oswald Gruebel told employees.
“We have to pay our employees in line with the market,” Gruebel said in an internal memo to staff today. “We will stick to this stance, even if it is criticized in the emotional debate over salaries.”
UBS is boosting salaries for senior bankers at its investment bank by an average of 50 percent to stem defections, three people with knowledge of the matter said earlier this month. The bank cut its bonus pool by 78 percent in January after amassing the biggest loss in Swiss corporate history in 2008 and turning to the Swiss government for help.
Our favorite part has to be “UBS AG, the Swiss bank which received government assistance.” Which government, how much assistance and when received seem details that either escaped the notice of Elena Logutenkova and Ambereen Choudhury, or didn’t seem to matter that much when it came time to email the copy editor and head out for a 90 minute Frappuccino.™ We can’t say we blame them much. Pointing an ugly finger at banks that have “received government assistance” is a full time job. But, be that as it may, UBS is the place to be. Obviously. Well, there is the little matter of all those Eastern European mortgages denominated in Swiss Franc, but… that’s for later.
UBS Will Stick to Market-Level Salaries, Gruebel Tells Staff [Bloomberg]
You will recall, no doubt, our puzzlement at the recent payment by Goldman to make “go-away” with this subprime business (in Massachusetts anyhow). We are even more puzzled now that Bloomberg is reporting how little Massachusetts Attorney General Martha Coakley had on Goldman:
The big news from Goldman and Massachusetts Attorney General Martha Coakley this week was a $60 million settlement, under which the investment bank resolved her office’s investigation into its packaging of mortgage securities backed by subprime home loans. Per the usual custom in such accords, Goldman didn’t admit any wrongdoing.
The odd part is that Coakley’s office didn’t accuse Goldman of any wrongdoing, either. It filed no lawsuit. And it made no allegations that Goldman had violated any statutes or rules.
Why did Goldman pay if Coakley’s investigators couldn’t identify any infractions to allege? That’s a mystery. The only statement I could squeeze out of Goldman was a one-liner from a P.R. man, Michael DuVally. “Goldman Sachs is pleased to have resolved this matter,” he said. I’ll bet it is.
The closest thing to an accusation Coakley could muster during a May 11 press conference was that Goldman “had played a role” in predatory lending in the state. Then again, so did a lot of other companies. By that standard, even local newspapers that printed the lenders’ ads might be in trouble.
Let’s just see here. Tax revenues crashing. Romneycare. Big social service infrastructure.
Now introduce Lloyd:
“Hey Martha! Got a deal for ya. You give us a waiver for any and all prosecutions arising out of this subprime business, really just a piece of paper, and I’ll give you a check for $60 million. Whatcha think?”
Sold!
Who do you think got the better end of this trade?
Goldman Pays Greenmail to Make Snoops Go Away [Bloomberg]
We aren’t sure if Goldman took lessons from Greenspan, or if Greenspan learned from Goldman, but either way, the density of the Goldman discourse on a given AIG question reaches neutron star levels while entropy is impossibly high. Consider this bit from a recent Reuters Q&A:
QUESTION: If Goldman Sachs was collateralized and hedged on its AIG positions, why did it take $12.9 billion of taxpayer money?
ANSWER: “Goldman Sachs has maintained that its exposure to AIG was collateralized and hedged. The majority of Goldman Sachs’ CDS (credit default swap) exposure to AIG Financial Group was collateralized. That means that Goldman Sachs had collateral. To the extent it wasn’t collateralized, Goldman Sachs hedged its exposure via the credit default swaps market. If the government had allowed AIG to fail, Goldman Sachs would have received its collateral. A credit event would be triggered, and Goldman Sachs would receive a payout from the credit default swap insurance that it had. This is from other counterparties.”
Separating out the money Goldman received due to AIG’s securities lending obligations, DuVally said: “AIG was not allowed to fail. So there was no payout from the hedges. Additionally after the bailout there was some additional deterioration in AIG’s position. Under the terms of the contracts that Goldman Sachs had with AIG, it was entitled to collateral. We were always fully collateralized and hedged.”
What he said.
Q&A with Goldman Sachs over AIG bailout [Reuters]
If it’s a day that ends in the letter y, it’s probably time to learn about problems in another dark corner of the credit markets. On the lesson plan for today are financial creatures known as variable interest rate entities. These were known as special purpose vehicles, or SPVs, until Enron tarnished that designation for off balance-sheet assets and liabilities. Rather than quitting the SPV business altogether, Wall Street simply adopted a less familiar name and kept right on keeping on.
Now bond research firm CreditSights tells us that VIEs may contribute as much as $88 billion in losses for financial firms. Goldman Sachs, which has done so well in avoiding the worst of the self-harming habits of Wall Street, has warned that it may incur as much as $11.1 billion of losses from VIEs. That’s just a few hundred million short of Goldman’s earnings for all of last year.
So what went wrong with the VIEs? Stop us if you’ve already heard this one. They are loaded up with assets such as subprime mortgages, and financed with commercial paper. As their assets get downgraded, investors shy away. The banks have agreed to back the VIEs with line of credit, meaning they wind up buying the commercial paper and notes from the VIEs when no one else will. The troubles of the bond insurers, of course, play a role. If Ambac gets downgraded or split, the assets of the the VIEs will likely have to be written-down. So, yes, once again the off-balance sheet liabilities find their way back onto the balance sheets of the banks.
“The disclosure on VIEs is hopeless,” S&P’s Tanya Azarchs tells Bloomberg. “You have no idea of the structure or how that structure works. Until you know that you don’t know anything. It’s like every day you come into the office and another alphabet soup has run off the rails.”
Update: A reader asks a fair question: what’s the difference between a SIV and a VIE? Well, we used to actually do some work structuring these things back in the days before DealBreaker. The way we remember it is that SIVs are actually a subcategory of VIEs. What we think is being discussed here is another type of VIE, the asset back commercial paper conduit or ABC paper conduit. Although officially off balance sheet, the ABCP conduits are usually backed by credit lines from the banks (whereas SIVs weren’t usually officially backed by the banks). When they can’t roll over their short-term commercial paper financing, they can turn to the banks to refi. This means they are less risky for outside investors but more risky for the bank parents. Got it?
Goldman, Lehman May Not Have Dodged Credit Crisis [Bloomberg]
