Goldman Sachs drove most costly AIG bargain

Written by Bloomberg | Updated: Jan 28 2010, 04:07am hrs
Goldman Sachs Group Inc. was the most aggressive bank counterparty to American International Group Inc before its bailout, demanding more collateral while assigning lower values to real estate assets backed by the insurer, documents obtained by lawmakers show.

A month before the September 2008 rescue, Goldman Sachs approached AIG about tearing up contracts protecting the bank against losses on collateralized debt obligations, or holdings backed by mortgages, according to a BlackRock Inc. presentation dated Nov 5, 2008. Goldman Sachs was the only counterparty willing to cancel the credit-default swaps and bear the risk of further CDO losses, provided that AIG make payments based on the banks larger-than-average estimate of market declines.

Goldman Sachs is the least risk-averse counterparty, according to the presentation, which was prepared by the asset manager for AIG and later given to the Federal Reserve Bank of New York. The firm is the only counterparty willing to tear up CDS with AIG at agreed-upon prices and retain CDO exposure. The document was obtained by the Congressional panel scheduled to hold a hearing on Wednesday on AIGs $182.3 bn bailout.

The presentation offers the clearest picture yet of the negotiations between AIG and its counterparties before a rescue that fully reimbursed banks including Goldman Sachs for $62.1 billion in CDOs. The BlackRock indicate that Goldman Sachs may have been betting that the securities would rebound from the values it assigned to them.