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Monday, 13 April 2009

Did Goldman strike gold on AIG?

A Florida-based a registered investment adviser has recently started a blog called "Facts about Goldman Sachs" – the web address for which is goldmansachs666.com. The bank isn't too happy about this and they have called in Chadbourne & Parke to get the website closed down. According to Chadbourne & Parke's letter of April 8, the site "violates several of Goldman Sachs' intellectual property rights" and also "implies a relationship" with the bank itself.

Maybe on the first point, not so sure about the second, except perhaps in the way that divorced couples have an implied relationship, mostly in the courts. Nevertheless, one point on the website appears worth repeating, at the risk of another letter wining its way to Megabank from Regis House.

Goldman was one of the beneficiaries of the government bailout of AIG receiving the proceeds of a cash injection into AIG as compensation for losses that Goldman may have sufered on AIG CDS's. But before AIG's collapse Goldman were insisting that they were hedged, but of course not necessarily through arrangements with AIG, but possibly with other counterparties. If so what happened to those hedges? Did the hedges pay out to Goldman on AIG's collapse, and did Goldman's share of the government bailout amount to an unexpected windfall profit for the bank?

Well if they did, surely that would show up in bumper profits? Well lo and behold something did. Yesterday Goldman had to reported that it had turned its performance round between January and March, recording net revenues of $7.1bn.

Better still for the employees, all no doubt saddened at the loss of 4,000 former colleagues, business was so good, the bank managed to increase its total compensation and benefits by 18% year on year, so that on average Goldman staff have had to get by on $56,000 a month, nearly 25% more than last year.

In fact business was so good that the bank is even looking to dilute existing shareholders by 5% by raising money to pay back all the TARP money so that directors' bonuses are no longer capped. That doesn't necessarily mean anybody can see the green shoots of recovery, perhaps only that some people can make money in bad markets.

I guess that is what happens when the Treasury brings in bankers to advise on how to stimulate the economy. They ensure that the stimulus should be introduced through their own checking accounts.

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