"Goldman Insists It Would Have Lost Little if A.I.G. Had Failed
Hoping to reduce a swirl of speculation over its role in the bailout of the American International Group, Goldman Sachs reiterated Friday that its direct losses would have been minimal if A.I.G. had failed.
Goldman also described how, as early as July 2007, it began to have “collateral disputes” with A.I.G. as the companies disagreed on the value of the mortgage-backed securities that were the basis of multibillion-dollar contracts between them.
David A. Viniar, Goldman’s chief financial officer, walked reporters through a thicket of numbers Friday in a conference call that the company held to “clarify certain misperceptions” about its positions with A.I.G.
While Mr. Viniar acknowledged that Goldman’s relationship with A.I.G. raised what he called a complex set of issues, he was adamant that, because of the collateral Goldman held and hedging trades with third parties, it would not have been damaged directly if A.I.G. had been allowed to collapse.
Since September, the government has set aside more than $180 billion to support A.I.G., the Government Accountability Office reported.
A significant part of that money has flowed through A.I.G. to various trading counterparties, many of them large financial institutions, which A.I.G. at first refused to identify.
Under intense pressure from lawmakers, A.I.G. recently released a list of counterparties, and Goldman was among the largest, accepting $12.9 billion of the insurer’s bailout money. For some, this raised questions about the government’s motivations for not letting the insurance company go into bankruptcy protection.
Goldman has said all along that its exposure to A.I.G.’s troubles was immaterial because of outside hedges that would have protected it.
On Friday’s conference call, Mr. Viniar described how Goldman entered into a large number of trading positions with A.I.G. in 2006 — when, he said, A.I.G. had a high credit rating and “appeared to be a sophisticated trading counterparty.”
But in 2007, Goldman began to mark down the value of the supersenior collateralized debt obligations that were underlying credit-default swap agreements with A.I.G. He said Goldman and A.I.G. could not agree on how much additional collateral A.I.G. had to supply to reflect the risk. ( NB Don )
During the negotiations, A.I.G. asked Goldman to accept less than full value for some of the contracts, but Goldman refused, Mr. Viniar said.
By the time of the A.I.G. bailout in mid-September, he said that Goldman held $7.5 billion in collateral from A.I.G. and had hedged the remaining $2.5 billion of its $10 billion net exposure using credit-default swaps with other parties. Goldman’s overall position with A.I.G., or the “notional” value of the contracts, was about $20 billion, he said.
After the rescue, Goldman received an additional $2.6 billion in collateral from A.I.G.
In mid-November, Goldman also sold $5.6 billion in securities related to the swaps at full value to a government-backed vehicle that had been created to help unwind A.I.G.’s ill-fated trades.
Asked why Goldman accepted full value for the securities, which were valued on the open market at far less, Mr. Viniar said Goldman had a commercial contract with A.I.G. and was “not in a position to take a loss.”
Accepting a loss it was not required to take would have gone against Goldman’s duty to its shareholders, and, Mr. Viniar added, to taxpayers.
“Frankly, we also had taxpayer money at Goldman Sachs,” he said, referring to its participation in the Troubled Asset Relief Program, in which the government bought preferred shares in many large banks.
He said he did not know how large a role Goldman’s collateral calls played in A.I.G.’s near collapse, but he rejected the suggestion that his company might feel guilty about its demands.
“All we did is call for the collateral that was due to us under the contracts,” he said. “So I don’t think there’s any guilt whatsoever.” ( NB DON )