Archive for September, 2008

Goldman Sachs faults NY Times story on AIG risk (Reuters)

Sunday, September 28th, 2008 | Finance News

NEW YORK (Reuters) -
Goldman Sachs Group Inc (GS.N) rejected as "seriously misleading" a published report on Sunday that said the Wall Street bank had as much as $20 billion of exposure to the troubled insurance giant American International Group Inc (AIG.N).

The New York Times had said Goldman was AIG's largest trading partner, citing six people close to the insurer. It also said a collapse of AIG threatened to leave a hole of as much as $20 billion in Goldman, citing several of the people.

The report contrasted with a Sept 16 comment by David Viniar, Goldman's chief financial officer, on a conference call with analysts that Goldman's exposure to AIG was immaterial.

Hours after he spoke, the U.S. government announced an $85 billion bailout of AIG, which had suffered spiraling losses on credit default swaps, a type of insurance contract whose value is tied to securities such as mortgages and corporate debt. A failure of AIG might have convulsed the global financial system because many companies do business with it.

Lucas van Praag, a Goldman spokesman, on Sunday said the Times article was wrong to suggest that Goldman had reason to be concerned about AIG's problems.

"Although we have said many times on the record that our exposure to AIG was, and is, not material, the reporter chose to pursue a story line which suggests, by innuendo, that is not the case," he said in an e-mailed statement.

"For the avoidance of doubt, our exposure to AIG is offset by collateral and hedges and is not material to Goldman Sachs in any way," he continued. "The conclusions about our interests that readers of the New York Times article are invited to reach are seriously misleading."

The newspaper did not immediately return calls seeking comment.

On September 21, Goldman said it converted to a bank holding company, which should reduce risk and potential profitability. Two days later, it won a $5 billion investment from Warren Buffett's Berkshire Hathaway Inc (BRKa.N) (BRKb.N).

Goldman shares closed Friday at $137.99 on the New York Stock Exchange. They have fallen 36 percent this year.

(Reporting by Jonathan Stempel, editing by Maureen Bavdek)

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Fortis in play as Trichet joins emergency talks (Reuters)

Sunday, September 28th, 2008 | Finance News

AMSTERDAM/BRUSSELS (Reuters) -
Fortis faced a takeover, break-up or nationalization as European Central Bank President Jean-Claude Trichet held emergency talks on Sunday with Dutch and Belgian ministers to restore faith in the Belgian-Dutch financial group.

Trichet, who as ECB head is responsible for safeguarding financial stability in the euro zone, joined Belgian Prime Minister Yves Leterme in Brussels in a bid to secure the future of Fortis, including a partial or full sale or some form of state intervention, a source familiar with the situation said.

BNP Paribas and ING Group both declined comment on reports that they could buy all or part of Fortis or Dutch bank ABN AMRO, which Fortis bought a year ago.

Fortis' board held an emergency meeting on Sunday, a source close to the board said, and new CEO Filip Dierckx then joined Belgian and Dutch ministers and central bankers meeting with Trichet nearby at the Belgian parliament.

A document Dierckx carried into the meeting, photographed by Reuters, listed a range of options including "Fortis to sell stake in ABN AMRO for x billion euros to xx" and "governments of Belgium and Luxembourg to invest xx billion euros in Fortis."

The document also said Fortis Chairman Maurice Lippens, blamed by some shareholders for poor communication over the bank's troubles, would resign.

Luxembourg Budget and Treasury Minister Luc Frieden said in an RTL television interview that the Dutch, Luxembourg and Belgian governments would all buy stakes in the cross-border bank unless a foreign bank buyer emerged.

"I hope we will find a solution to protect savers," Dutch Finance Minister Wouter Bos said on his way into the meeting.

Dutch newspaper Het Financieele Dagblad said ING had withdrawn from talks to take over some or all of Fortis.

The problems at Fortis, whose shares dropped by a third last week on investor concerns about its liquidity and funding, stem from last year's 70 billion euro purchase of ABN with partners Royal Bank of Scotland and Spain's Santander.

A key issue in the future of Fortis was whether the governments or the ECB would provide financial guarantees, a source familiar with the situation said.

Belgian business daily Tijd said nationalization was emerging as the most plausible option with the ECB ready to make available a big credit line to help the Belgian authorities.

At the same time, financial authorities in Belgium and the Netherlands scrambled to prepare reassurances on the integrity of the wider Benelux financial system, officials said.

Belgium's financial regulator, the Banking, Finance and Insurance Commission (CBFA) said an announcement was likely in the evening.

BNP PARIBAS, ING INTERESTED?

Officials from central banks, supervisors and government treasury departments were also converging in Amsterdam on Sunday for a long-scheduled meeting of the Financial Stability Forum (FSF) chaired by Bank of Italy Chairman Mario Draghi, with a news briefing brought forward to Monday from Tuesday.

Fortis has been weighed down by its 24 billion euro outlay for ABN in a market that is neither conducive to more capital increases nor willing to pay for the assets it wants to sell.

As its shares plummeted more than 20 percent to 15-year lows on Friday, Fortis called an emergency news conference to say its position was strong and that it would expand asset sales to as much as 10 billion euros to raise cash.

The stakes are high in Belgium, where Fortis is the biggest private sector employer and more than 1.5 million households, roughly half the country, bank with the group.

Marianne Thyssen, chairwoman of Prime Minister Leterme's Christian Democrats, told Belgian television it was important the public should know their savings were safe.

"The government is ready to guarantee the full 100 percent."

Fortis named Dierckx as chief executive on Friday evening, hastily replacing interim incumbent Herman Verwilst.

In London, regulators were in talks on the future of troubled lender Bradford & Bingley, raising the prospect that a second British bank could be nationalized.

Financial players around the world were hoping that U.S. lawmakers would finally sign off on a deal to create a $700 billion government fund to buy bad debt from ailing banks in a bid to stem a credit crisis threatening the global economy.

(Additional reporting by Antonia Van De Velde, Yves Herman, Marcin Grajewski in Brussels, Michele Sinner in Luxembourg, Steve Slater in London; Writing by Paul Taylor and Reed Stevenson; Editing by Paul Bolding and Alexander Smith)

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UK set to nationalize B&B bank, may sell savings (Reuters)

Sunday, September 28th, 2008 | Finance News

LONDON (Reuters) -
Britain's government will nationalize troubled mortgage lender Bradford & Bingley (BB.L) and is discussing the sale of its savings book and branches, people in the banking industry familiar with the matter said.

The Treasury is leading talks on the rescue of the bank and on Sunday said discussions were continuing. A full statement will be made by Finance Minister Alistair Darling before Monday's market opening.

The Treasury would have preferred a private-sector rescue for Britain's ninth-biggest mortgage provider, but rivals appear unwilling to come in as a "white knight" amid a global credit crisis and weakening British housing market.

The BBC said B&B will be nationalized and its mortgage book merged with Northern Rock, the lender taken under state ownership in February.

The government this month brokered the takeover of HBOS (HBOS.L), Britain's biggest home lender, by rival Lloyds TSB (LLOY.L) and is stepping in again.

"We are very clear that depositors and ordinary savers must be properly protected and they will be as part of the arrangements we will set out," Treasury Minister Yvette Cooper told the BBC.

She said the government was aiming to provide financial stability to all of the banking system. The move came as U.S. lawmakers tried to finalize a $700 billion government-backed financial industry rescue plan and Belgian-Dutch Fortis (FOR.BR) faced a takeover or break-up and emergency talks about its future intensified.

B&B is the latest bank to be hit by a global financial crisis, which was sparked by losses on poor quality U.S. home loans and has claimed a number of high-profile victims in the United States and Europe.

The crisis and Britain's weakening economy have heaped pressure on British Prime Minister Gordon Brown, whose party lags the opposition Conservatives in opinion polls and whose leadership has been questioned by some in his own party.

BRANCHES COULD BE SOLD

B&B's 24 billion pounds ($44 billion) of savings and its 200 branches could be sold to a rival or rivals. Spain's Santander (SAN.MC), which owns Abbey and is in the process of buying Alliance & Leicester (ALLL.L), was in talks about possibly taking over deposits and branches, an industry source said.

But rivals are reluctant to take ownership of B&B's book of 41 billion pounds of residential loans -- representing 3.4 percent of British mortgages -- as many of them are higher risk buy-to-let and self-certified loans and the British housing market is weakening, raising the prospect of rising bad debts.

B&B's fall would be a further blow for borrowers and make it harder to get specialty loans as banks scale back bank lending, especially for riskier products.

It would also mean all the building societies that were demutualized in the late 1980s and 1990s, including Abbey, Woolwich and Northern Rock, have been taken over or rescued.

The government could nationalize B&B using legislation put through to deal with the Northern Rock crisis.

A spokesman for B&B said: "We can confirm we are working with regulatory authorities to bring clarity to the bank's future." He said news would be announced before Monday's stock market opening and customers' savings were safe.

B&B shares tumbled to a record low on Friday and the cost of insuring its debt jumped, prompting regulators to step up efforts to find potential white knights for the bank.

Its shares closed on Friday at 20 pence, valuing it at less than 300 million pounds.

The Association of British Insurers urged the government to maximize value from the run-down of B&B for shareholders and bondholders. "It should not be a foregone conclusion that all residual value is wiped out by any nationalization," said Peter Montagnon, director of investment affairs at the ABI.

The government considered asking a group of banks to take part in a "lifeboat rescue," where they would all take some of B&B's mortgages, but that did not win support, sources said.

Britain's top five banks -- HSBC, Royal Bank of Scotland (RBS.L), Barclays, Lloyds TSB and HBOS -- and Santander already own more than 20 percent of B&B among them after they stepped in to help save a rights issue that flopped in June.

($1=.5440 Pound)

(Additional reporting by Adrian Croft; Editing by Paul Bolding and Maureen Bavdek)

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