Posts Tagged ‘Goldman Sachs’

Ecuador: Something’s rotten in the gold swap

Friday, June 6th, 2014

Following up on the Ecuadorian gold story, it turns out it’s not quite a sale, it’s a swap:

On Tuesday, Ecuador announced that it had swapped 1,165 bars of gold with Goldman. The gold is worth nearly $600 million, based on current prices. Goldman GS 1.76% , in return, is giving the Ecuadorians “instruments of high security and liquidity,” which is likely cash or something close to it.

And Ecuador gets to keep its gold. As part of the deal, three years from now, the two will reverse the swap. Ecuador gets its gold back. And Goldman gets the going price for 1,165 yellow bars in 2017.

Stephen Gandel looks at the deal

. . . there are a few ways Ecuador could end up making $20 million on the deal. Ecuador could be betting that the price of gold will fall 20% over the next three years. Another way would be for Ecuador to take the cash it gets from the swap and invest it elsewhere in something that will make 20% over the next three years, not an easy task given that the average bond is yielding just 1.8%.

Or Ecuador could have done another swap, this time with the dollars it received from Goldman for Ecuadorian bonds. It would, of course, have to pay Goldman another fee for that. But that swap would pay the spread between U.S. three-year interest rates at about 0.85%, and Ecuadorian interest rates, which are around 7% or 8%, or a little over 20% during the three years.

So, then, why isn’t everyone doing Ecuadorian swaps? I mean, it’s guaranteed money. For one, the fee that Goldman or anyone else charges to do these deals must be pretty high. Also, if Ecuador defaults, you lose all your money, and you still have to repay the swap.

And Ecuador has recently defaulted, sort of. Five years ago, Ecuador tricked its lenders into thinking it was going to default on its debt. It told banks and investors that it didn’t think it would be able to repay about $3 billion in bonds. Those bonds, as you would expect, plunged in value to about $0.30 for every dollar Ecuador had borrowed.

Once the bonds plunged in value, Ecuador started buying them, eventually snapping up 90% of the much cheaper bonds. The move wiped out the debt and saved the country nearly $2 billion, which was also how much the banks and investors lost on those bonds.

Two words of advice: STAY AWAY.

Ecuador: Selling gold

Tuesday, June 3rd, 2014

Having defaulted “by choice” in the past, Correa continues to pave the way for issuing debt in the future:
Ecuador Sends Gold Bricks to Goldman Sachs in Liquidity Hunt

Ecuador agreed to transfer more than half its gold reserves to Goldman Sachs Group Inc. for three years to give the government easier access to cash.

Money quote (emphasis added):

The deal comes as the South American country’s government, which defaulted on about $3.2 billion of bonds five years ago, seeks to cover a budget deficit forecast by the Finance Ministry to swell to a record $4.94 billion this year. President Rafael Correa said in April he also planned to sell about $700 million of foreign debt this year in the country’s first international bond sale since the 2008 and 2009 default.

Correa must be counting on enough suckers being born every minute.

Sing it!

Putting the wolf in charge of the henhouse

Wednesday, January 19th, 2011

Ooops, there goes that ethics pledge!

“2.Revolving Door Ban — All Appointees Entering Government. I will not for a period of 2 years from the date of my appointment participate in any particular matter involving specific parties that is directly and substantially related to my former employer or former clients, including regulations and contracts.

Obama’s SEC hires Goldman Sachs asset manager to regulate asset managers

Ms. Rominger comes to the SEC from the asset management industry, where she worked for the past 11 years at Goldman Sachs Asset Management and most recently served as the firm’s global chief investment officer.

Well, at least she’s not the genius who masterminded the Facebook flop. Or at least one hopes so.

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