Tuesday, April 20, 2010

Leaked Goldman Presentation on Abacus Trade

Yves Smith, creator of Naked Capitalism: "We received a copy of the document via e-mail and assumed this is being leaked broadly (which begs the question of whether this was by happenstance or deliberate. The proximity to the filing of the suit suggests the latter). Richard Smith published it on ScribD:"


Yves Smith: "Several items jump out.

First is the unseemly number of pages devoted to touting ACA’s expertise and deliberate screening process, namely pages 20 to 48 and 57 through 63. ACA presumably provided all the material in this section, which is misleading, but since it was for the most part not incorporated in the offering documents, ACA would appear not to be liable (plus Goldman is still on the hook, since it was making representations re ACA’s process and procedures). The amount of information provided gives further support to the idea that the caliber and independence of the collateral manager was an important consideration for prospective investors in the deal.

Second is the long list of contacts on page 65, including Jonathan Egol (who spearheaded the Abacus program) and Testuya Ishikawa (who has left the industry and wrote the book How I Caused the Credit Crunch). As many have remarked, the singling out of Tourre seems odd.

Goldman released a short statement today on the pending suit and has provided a longer statement in its defense. Its basic arguments are:

1. Goldman lost money on the deal. Hhm, is that because the losses were larger than the guarantee provided by ACA on the super senior tranche? (The statement “ACA was the biggest investor” presumably translates into “ACA insured the super senior tranche” but to the extent the insurance failed, Goldman would be exposed). That would be a failure of risk management (as in GS expected the deal to fail, but its hedge was insufficient).

2. Goldman made adequate disclosure. We’ll see how that contention holds up as more information comes out."

(from Naked Capitalism, April 16, 2010)

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