Goldman RBS Leads Cheyne Finance Bailout

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The news on Friday that a court had issued an order allowing Cheyne Finance, the London based SIV, shiv it’s creditors by ceasing payment on its commercial paper is, somehow, good news. At least, it’s good news for Goldman’s prime brokerage business, according to the Telegraph.
How’s that work? If it’s too early in the day for you to read about the sordid tales of Wall Street conflicts of interest, you may want to skip this item. Here’s how it starts: last month Goldman set up a private equity arm to invest in hedge funds, a move that is widely seen as a way of giving a boost to its already fabulously successful prime brokerage business. If the hedge fund investments earn great returns, they’ll make money. And if they don’t, the fund managers may be grateful enough for the new fund injections that they’ll give Goldman their prime brokerage business. And if that doesn’t work—if the fund managers don’t make Goldman the broker for their funds—well, Goldman can always threaten to send in a couple of redemption notices. They’ll get the message pretty quick.
It’s a standard Goldman move, the kind of thing that makes you slap your forehead in wonder that you hadn’t thought of such an obvious strategy yourself. If only you had a more devious mind.
Now hedge funds that had invested in Cheyne’s commercial paper are panicking at the SIV’s insolvency. And who is riding to their rescue? Well, that very same Goldman Sachs, of course.
Deloitte, which is administering Cheyne, has been holding talks with banks interested in rescuing the fund with new money. According to the Times, Deloitte is expected to narrow these rescue talks down to a single bidder within days. Goldman is widely thought to be the lead bidder, although the Royal Bank of Scotland is also said to be a contender. There’s also talk of a strong third bidder but we have no idea who that might be and the Telegraph isn’t naming them either.
This brings about the mind-boggling possibility that Goldman has invested in hedge funds that have invested in commercial paper issued by an entity which may soon be owned by Goldman Sachs. And you thought that KKR borrowing money from Citigroup to buy Citigroup loans to KKR was spinning things right round like a record baby, right round.
Goldman takes lead in race for Cheyne [Telegraph]
Update, 9:47 AM: It looks like even Goldman couldn’t get around to spinning things that fast. The latest word is that RBS is now in exclusive talks to buy the assets of Cheyne. “If the deal goes ahead, it will mark the first known sale of an SIV's entire book of assets, and would be an encouraging sign for other troubled SIVs that are trying to refinance or restructure their portfolios,” Market Watch notes.

RBS in exclusive talks on Cheyne SIV assets: sources
[MarketWatch]

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