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John B. Lounsbury Ph.D., CFP is a financial planner and investment advisor in Clayton, NC.
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  • More Goldman Outrage 5 comments
    Oct 26, 2009 02:17 PM | about stocks: GS, LEH, AIG, BAC, DB, SKF

    David Viniar is CFO of Goldman Sachs (GS).  On September 16, 2008, the day after the Lehman collapse, Goldman conducted a conference call.  At that time, Viniar said, "I would tell you is, given the outcome at Lehman and whatever the outcome at AIG, I would expect the direct impact of our credit exposure to both of them to be immaterial to our results."

    Saturday's New York Post article by Josh Kosman and Mark DeCambre (here) reveals that GS has filed a suit that claims a $2.5 billion contractual obligation to them by Lehman.  Of course, they are not likely to have this claim honored.  There are about $50 billion in bankruptcy claims against about $5 billion of Lehman assets.  If they are apportioned a settlement, it will be about $250 million.

    What is Goldman thinking?  They are exposing one of two things:  (1) duplicity or (2) incompetence.  They are doing this for a potential $250 million?  Maybe they are so arrogant that they just don't care or maybe they didn't think anybody would notice.

    According to Kosman and DeCambre, previously Goldman thought the claim would be larger:

    "Goldman, in last month's claim, said it was initially owed $4.2 billion, but reduced that figure to $1.5 billion after it replaced some Lehman positions."

    Replaced some Lehman positions?  Did they trade off (cross cancel) some CDSs with other counter parties?  This needs clarification.

    In the new claim, the $1.5 billion was increased because GS "discovered" some new related material.  This comes to light more than a year later?  Are these guys  for real?

    Of course, the amounts we are talking about here are almost trivial in relation to the CDS payments made by AIG, using government money, to GS previously.  This was $13 billion (see LA Times article here).  Immaterial to results (see September 13 statement above)?  What a load of male bovine excrement! 

    Other large banks also have claims pending, totaling more than $10 billion (not including GS).  The list is available in the Post article (here) and includes Bank of America (BAC) and Deutsche Bank (DB). 

    Disclosure:  Currently own SKF (Ultrashort Financial ProShares).  

    Themes: Lehman, Goldman, CDS Stocks: GS, LEH, AIG, BAC, DB, SKF
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This post has 5 comments:

  •  
    Glad to see you're on the (SKF) wagon too, John.

    Only minutes ago did I buy some shares, and then I read this article, and then I see that you too, have SKF.

    All the noise about what Barney Frank and Shela Bear are doing toward big banks made me put up a defensive posture.

    A big tell will be what SKF does in the after markets.
    Oct 26 02:30 PM | Link | Reply
  •  
    Well, how about that! Maya and I came to the same conclusion without commiserating. I own a few SKF shares now, too. I think it is a good hedge if you hold bank stocks. But, unlike you (possibly) I also think it may be a good way to catch the next down move.

    The way I see it, technology and financials have been the leaders out of the abyss. One or the other will probably lead the market down. My pick from this point would be financial stocks. If the truth be told (which it isn't in terms of bank stock reporting) banks are much weaker than they appear on from their external reports. If, for some reason, they are not able to garner the huge trading profits, their bottom lines become toast. If they have to report off balance sheet asset on their balance sheets, they'll have to raise capital (and lots of it) to meet reserve requirements. If accounting rules about valuing assets are changed to make balance sheets more transparent, they will, once again, start bleeding red ink. Well, at least that is my opinion. Longer term, I like some of the banks; but not until they cleanse their balance sheets and the employment picture starts to improve dramatically from current levels.
    Oct 26 02:43 PM | Link | Reply
  •  
    Mark: Last four out of five trading sessions are down. VIX is spiking up. Transportation is down. Dollar is rallying. Commodities are down (ouch!). DC rumblings. Goldman wants money from a dead cat. Bombs going off in Iraq. Foriegn investors fleeing the dollar. And the list goes on and on.

    Friday, I began reducing my positions. Today I continued, with the exception off adding (NVAX), (SKF) and a tad of JAG. The (PAL) I bought I already sold. Busy little fingers have made a slew of trades today--most get'n out of Dodge.

    Oct 26 03:07 PM | Link | Reply
  •  
    I bought FAZ last Tuesday. It could be good insurance since there's not one iota of good news coming out of the financial sector. This might double post.
    Oct 26 03:21 PM | Link | Reply
  •  
    Mark - - -

    I made a similar observation in an article at TheStreet.com within the past couple of weeks. (Tech and financials the best shorts in a pullback.)
    Oct 26 04:04 PM | Link | Reply
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