At Goldman Sachs, what's a few billion between friends?

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Goldman Sachs' Viniar 'Mystified' by Interest in AIG

By Christine Harper
Bloomberg News
Tuesday, April 14, 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=aVJT1NtIY3DQ&refer=h...

NEW YORK -- David Viniar, Goldman Sachs Group Inc.'s chief financial officer, said he's "mystified" by the interest investors and government officials have shown in the bank's trading relationship with American International Group Inc.

"They're one of thousands and thousands and thousands of counterparties and the results of any trading with AIG are completely immaterial to what we do," Viniar said today in an interview. "I am mystified by this fascination with AIG."

Goldman Sachs, the most-profitable securities firm before converting to a bank last year, received more cash from AIG after the Federal Reserve rescued it last year than any other counterparty. The company has said it was insured against any losses from AIG and it didn't benefit from the government's rescue of the New York-based insurer. The Treasury Department's chief watchdog for the financial rescue program is investigating whether AIG paid more than necessary to banks.

Viniar told analysts today that any profits related to AIG in the January-to-March quarter "rounded to zero," as most of the transactions were unwound before the end of the year. In an interview, he also said profits in December weren't significant.

"I would never tell you that we didn't book any profit. I don't even know," he said. "I couldn't tell you with any counterparty that we booked zero, but I could tell you it rounded to zero."

After AIG was rescued by the U.S. from collapse last year, banks that bought credit-default swaps got $22.4 billion in collateral and $27.1 billion in payments to retire contracts, the insurer said last month.

Neil Barofsky, special inspector general for the government's Troubled Asset Relief Program, began an audit two weeks ago into whether there were attempts by AIG or the government to reduce the payments, according to an April 3 letter to Representative Elijah Cummings. The Maryland Democrat requested the probe last month along with 26 other members of Congress.

Lawmakers, frustrated with the cost of an AIG bailout that has expanded three times, have asked why about $50 billion was paid after the initial September rescue to banks that bought credit-default swaps from the firm. The audit will reveal who made "critical decisions" regarding the payments and provide an explanation for the actions, Barofsky said.

Viniar held a conference call on March 20 to answer questions about the firm's trading relationship with AIG and to "clarify certain misperceptions."

When AIG was rescued, Goldman Sachs had $10 billion of exposure to the insurance company that was offset with $7.5 billion of collateral as well as credit-default swaps that would have paid off in the event of an AIG bankruptcy, Viniar said on the March 20 call.

He also said on the call that Goldman Sachs recorded a gain "over time" on the value of the hedges it bought to guard against a default on AIG, even though the government enabled the insurer to honor its obligations. In today's interview, he said those gains were booked "from 2006 to now" and that any gains booked in the first quarter "would have been very, very small."

Goldman Sachs reported late yesterday that it earned $1.81 billion, or $3.39 per share, in the first quarter on record revenue from trading fixed-income, currencies and commodities. The firm also raised $5 billion by selling stock at $123 per share, a 5.5 percent discount from yesterday's closing price.

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