Libya Lost $1.3 Billion on Options Trades Done with Goldman Sachs
May 31st, 2011But first, remember this one? The Long and Short of It at Goldman Sachs:
The point to bear in mind, as Mr. Sloan brilliantly makes clear, is that as Goldman was peddling C.M.O.’s, it was also shorting the junk on a titanic scale through index sales — showing, at least to me, how horrible a product it believed it was selling.
They had the insight (whatever black magic that entailed) to do those shorts, which means they knew what else was going to blow up; everything, in other words. I don’t think it’s rocket science to know who pocketed the premiums from the sales of these options to the Libyans.
And now, NATO is bombing Libya to save the children? Oh yeah, that’s the ticket.
Via: Wall Street Journal:
In early 2008, Libya’s sovereign-wealth fund controlled by Col. Moammar Gadhafi gave $1.3 billion to Goldman Sachs Group to sink into a currency bet and other complicated trades. The investments lost 98% of their value, internal Goldman documents show.
What happened next may be one of the most peculiar footnotes to the global financial crisis. In an effort to make up for the losses, Goldman offered Libya the chance to become one of its biggest shareholders, according to documents and people familiar with the matter.
Negotiations between Goldman and the Libyan Investment Authority stretched on for months during the summer of 2009. Eventually, the talks fell apart, and nothing more was done about the lost money.
An examination of the strange episode casts light on a period of several years when Goldman and other Western banks scrambled to do business with the oil-rich nation, now an international pariah because of its attacks on civilians during its current conflict. This account of Goldman’s dealings with Libya is based on interviews with close to a dozen people who were involved in the matter, and on Libyan Investment Authority and Goldman documents.
…
Goldman soon carved out a new business with the Libyans, in options—investments that give buyers the right to purchase stocks, currencies or other assets on a future date at stipulated prices. Between January and June 2008, the Libyan fund paid $1.3 billion for options on a basket of currencies and on six stocks: Citigroup Inc., Italian bank UniCredit SpA, Spanish bank Banco Santander, German insurance giant Allianz, French energy company Électricité de France and Italian energy company Eni SpA. The fund stood to reap gains if prices of the underlying stocks or currencies rose above the stipulated levels.
But that fall, the credit crisis hit with a vengeance as Lehman Brothers failed and banks all over the world faced financial crises. The $1.3 billion of option investments were hit especially hard. The underlying securities plunged in value and all of the trades lost money, according to an internal Goldman memo reviewed by the Journal. The memo said the investments were worth just $25.1 million as of February 2010—a decline of 98%.
Officials at the sovereign-wealth fund accused Goldman of misrepresenting the investment deals and making trades without proper authorization, according to people familiar with the situation. In July 2008, Mr. Zarti, the fund’s deputy chairman, summoned Mr. Kabbaj, Goldman’s North Africa chief, to a meeting with the fund’s legal and compliance staff, according to Libyan Investment Authority emails reviewed by the Journal.
Same as it ever was: http://www.lexrex.com/enlightened/articles/warisaracket.htm