Tim Backshall, chief strategist with Credit Derivatives Research weighed in at the end of the day on the nature of Goldman Sachs’s (GS) Abacus collateralized debt obligation.
Why did the supposedly well informed investors, ACA Capital Management and German bank IKB, lose money with all the information they had on the underlying portfolio?
The issuer (GS) then sells the deal, tranched up nicely, to its clients. The clients are not necessarily dumb but should understand that a AAA ‘bond’ offering 150bps over Swap is maybe ‘not’ AAA – the fact of the matter was that the buyers of the tranches had all (or a lot) of the information to judge the deal, but often did not as they were caught up in the chase/grab for yield (sound familiar?).
And as for Goldman’s stated loss on the deal — $90 million — Backshall cautions, as have some readers on this blog, that there were other ways for Goldman to turn a profit:
Holding some of this poart of the deal was also a great selling point (we hold it so you should!). Of course, GS scraped a handsome fee from the deal (in excess spread) and would have made a fortune on the udnerperformance of the better-rated tranches (even if they lost all of a small part of the most junior tranches). By the way, this was apparently a deal within the AIG book and so any losses GS faced on the most junior tranches they clung to were probably bailed out at 100%!
No comments:
Post a Comment