Goldman Sachs believes that it is slow in India

By George Alexander and Ruth David Smith

In India, economic expansion led mergers and stock Records offerings last year. Goldman Sachs (GS), which is exercised to take advantage of the boom, progress can be slow and take advantage of the elusive deals.

CEO Lloyd c. Blankfein said that Goldman wanted to "be Goldman Sachs more place." That was not easy in India. The company does not have the licenses required for trade in the currency and to guarantee the obligations of the Government. India companies are reluctant to pay for advice on mergers. Banks accept tiny taxes to take public State enterprises because they want to build goodwill with the Government and the advance in the classification of the case. First part of sale of Goldman in the country this year may be a 1.3 billion offering of the Ministry of Finance of power belonging to the State, scheduled for may, for which it will be divided a symbolic amount of 1 rupee (2 ￠) with three other banks, according to two people with knowledge of the case. The Bank also accepted year last to handle the sale of shares for Power Grid Corp., belonging to the State of the India for about 4 ￠ fee. "This is an extremely competitive market," says Manisha Girotra, the CEO of UBS (UBS) the India operations. "Everyone here is because the promise is enormous."

To stimulate business, Goldman Sachs named Sonjoy Chatterjee, 42, President of the operations of the India in March. Chatterjee, who joined in June last as co - CEO of ICICI Bank, an second lender in the country, is the first Indian banker to lead the firm in the country, since it ended in a joint venture with Kotak Mahindra Bank in 2006. Vijay Karnani, a Goldman Sachs of 13-year veteran, was promoted to co - CEO with Chatterjee.

In the ranking for 12 months, Goldman Sachs rose to no. 2 in mergers and acquisitions and 13 by organizing sales of local shares, according to data compiled by Bloomberg. That compares to the ninth place in advising on M & A involving Indian companies and 16 to purchase equity in the country within four years from April 1, 2006, just after the company at the end of its partnership with Kotak MahindraBloomberg data show.

The company advance was assisted by his role of Advisor Reliance Industries, led by billionaire Mukesh Ambani, which sold interests in 23 areas of oil and gas in India to BP in February for $ 7.2 billion. The relationship could lead to more work M & A of Goldman Sachs: dependency was undertaken more acquisitive of the India last year, with nine bids totaling $ 2.2 billion, Bloomberg data show.

Freeman & Co., a New York research firm, believes that total investment banking fresh in India were about 1 billion dollars last year, one-fifth of 4.9 billion for China. Annual turnover of Goldman Sachs in India of all its companies is about 100 million dollars, according to a report on 21 March by Guy Moszkowski and Steven j. Chubak, Bank of America analysts. It is a quarter of one percent of 39.2 billion of the Cabinet of incomes in the world last year.

Goldman Sachs is the only headlines foreign firm in India without a commercial banking licence necessary to engage in currency transactions, or permit the Government to take charge of the bonds. Goldman Sachs executives told analysts of Bank of America last month that the company has applied for a licence and that it expects to receive a three to six months, according to the report of. Edward Naylor, a spokesman for Goldman Sachs in Hong Kong, refused to comment, as did Chatterjee.

The India is among the emerging markets that Goldman Sachs while the company faces more restrictive rules in Europe and the United States on how it can deploy capital. The Bank aims to double income Asia outside the Japan "over the next years", to $ 10 billion, analysts of Bank of America wrote. Annual filing of the company with the Securities and Exchange Commission showed that Asia represents 21 percent of income before taxes and 18 per cent of income in 2010. He returned not to disclose or take advantage of the India. Blankfein, "GDP growth and the relative financial stability of many countries in growth are trends that could lead to revenue in the whole of our business opportunities," said a November Investor Conference in New York.

Goldman Sachs has agreed to buy based out of Mumbai Benchmark Asset Management, a provider of common funds and of negotiated Fund, last month. Terms were not disclosed. Assets managed by mutual funds investment more than tripled, to 6.8 billion rupees in the five years that was completed on December 31, according to the Association of the mutual funds of the India.

Chatterjee the trick will be to convince local businesses to pay for advisory work when rival companies are willing to sacrifice a fee to win market share. "Indian customers are very price-sensitive when it comes to costs," explains Joel Perlman, Chairman of London Copal partners, which provides research for investment banks and private equity firms. "The percentage of India costs will remain relatively small."

The bottom line: Goldman Sachs has perhaps had income of approximately 100 million dollars in India last year, a quarter of one percent of the total world.

With Christine Harper. Alexander is a reporter for Bloomberg News. David is a reporter for Bloomberg News.

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Goldman Sachs has misled Congress after deceiving customers, Levin, said

April 14, 2011, 12:03 AM EDT By Robert Schmidt, Clea Benson and Phil Mattingly

(For more on the Levin Report, see EXT2 )

April 14 (Bloomberg) -- Goldman Sachs Group Inc. misled clients and Congress about the firm’s bets on securities tied to the housing market, the chairman of the U.S. Senate panel that investigated the causes of the financial crisis said.

Senator Carl Levin, releasing the findings of a two-year inquiry yesterday, said he wants the Justice Department and the Securities and Exchange Commission to examine whether Goldman Sachs violated the law by misleading clients who bought the complex securities known as collateralized debt obligations without knowing the firm would benefit if they fell in value.

The Michigan Democrat also said federal prosecutors should review whether to bring perjury charges against Goldman Sachs Chief Executive Officer Lloyd Blankfein and other current and former employees who testified in Congress last year. Levin said they denied under oath that Goldman Sachs took a financial position against the mortgage market solely for its own profit, statements the senator said were untrue.

“In my judgment, Goldman clearly misled their clients and they misled the Congress,” Levin said at a press briefing yesterday where he and Senator Tom Coburn, an Oklahoma Republican, discussed the 640-page report from the Permanent Subcommittee on Investigations.

Goldman and Deutsche

Much of the blame for the 2008 market collapse belongs to banks that earned billions of dollars in profits creating and selling financial products that imploded along with the housing market, according to the report. The Levin-Coburn panel levied its harshest criticism at investment banks, in particular accusing Goldman Sachs and Deutsche Bank AG of peddling collateralized debt obligations backed by risky loans that the banks’ own traders believed were likely to lose value.

In a statement, New York-based Goldman Sachs denied that it had misled anyone about its activities. “The testimony we gave was truthful and accurate and this is confirmed by the subcommittee’s own report,” Goldman Sachs spokesman Lucas van Praag said.

“The report references testimony from Goldman Sachs witnesses who repeatedly and consistently acknowledged that we were intermittently net short during 2007. We did not have a massive net short position because our short positions were largely offset by our long positions, and our financial results clearly demonstrate this point,” van Praag said.

‘Divergent Views’

In a statement, Deutsche Bank spokeswoman Michele Allison said, “As the PSI report correctly states, there were divergent views within the bank about the U.S. housing market. Moreover, the bank’s views were fully communicated to the market through research reports, industry events, trading desk commentary and press coverage. Despite the bearish views held by some, Deutsche Bank was long the housing market and endured significant losses.”

The panel’s report also examined the role of credit-rating firms in the meltdown, lax oversight by Washington regulators and the drop in lending standards that fueled the mortgage bubble and ultimately caused hundreds of bank failures.

The subcommittee’s findings show “without a doubt the lack of ethics in some of our financial institutions who embraced known conflicts of interest to accomplish wealth for themselves, not caring about the outcome for their customers,” said Coburn. “When that happens, no country can survive and neither can their financial institutions.”

Final Assessment

The report is likely Washington’s final official assessment of the turmoil beginning in 2007 that froze credit markets, took down investment banks Bear Stearns Cos. and Lehman Brothers Holdings Inc., sent housing finance giants Fannie Mae and Freddie Mac into government conservatorship and caused the worst economic collapse in the U.S. since the Great Depression.

The $700 billion taxpayer bailout that followed in October 2008 upended the relationship between Wall Street and the federal government, turning CEOs like Blankfein and Lehman’s Richard Fuld into political punching bags. Populist anger at high-paid bank leaders helped fuel the passage of last year’s Dodd-Frank law, which set out the biggest changes to financial oversight since the 1930s.

The Senate report comes less than a year after Goldman Sachs paid $550 million to resolve SEC claims that it failed to disclose that hedge fund Paulson & Co was betting against, and influenced the selection of, CDOs the company was packaging and selling.

Goldman Sachs, in its settlement with the SEC, acknowledged that marketing materials for the 2007 CDO deal contained “incomplete information.”

Documents and Footnotes

The Senate subcommittee’s bipartisan report, buttressed by 2,800 footnotes and thousands of internal documents from Goldman Sachs and other firms, may have more impact than previous investigations into the crisis.

It’s an open question whether the Justice Department and the SEC will review its findings. Levin does not have the power to refer the allegations to federal authorities on his own. The subcommittee has a formal process for making referrals, which requires Levin to get the support of Coburn before making an official referral. Levin is going to recommend that the subcommittee make referrals, though he has not done it yet, staff members said.

The Levin report will be examined by policy makers including the SEC and Commodity Futures Trading Commission, which are writing hundreds of Dodd-Frank rules governing derivatives, mortgage securities and proprietary trading.

Coburn, the senior Republican on the subcommittee, said the review carries more heft than the three separate reports issued earlier this year by a politically divided Financial Crisis Inquiry Commission.

Goldman Practices

“We don’t need commissions to do our job and this proves it,” Coburn said. The FCIC “spent $8 million and 15 months” on its inquiry and “didn’t report anything of significance.”

The panel said Goldman Sachs relied on “abusive” sales practices and was rife with conflicts of interest that encouraged putting profits ahead of clients.

“While we disagree with many of the conclusions of the report, we take seriously the issues explored by the subcommittee,” van Praag said.

Van Praag pointed to the firm’s recent examination of its business practices that prompted it to make “significant changes that will strengthen relationships with clients, improve transparency and disclosure and enhance standards for the review, approval and suitability of complex instruments.”

In the case of one CDO, Hudson Mezzanine Funding 2006-1, Goldman Sachs told investors its interests were “aligned” with theirs while the firm held 100 percent of the short side, according to the report.

Gemstone CDO

The report detailed a $1.1 billion Deutsche Bank CDO known as Gemstone VII, which was backed with subprime loans that its then-top trader, Greg Lippmann, referred to as “crap.” The head of the bank’s CDO group, Michael Lamont, said in an e-mail cited in the report that he would try to sell the CDO “before the market falls off a cliff.”

On lending, the panel alleges that executives at failed thrift Washington Mutual Inc. dumped its bad loans on clients while misleading them about their value.

“WaMu selected delinquency-prone loans for sale in order to move risk from the banks’ books to the investors in WaMu securities,” Levin said.

Compounding that problem, the subcommittee found, was an apparently cozy relationship between WaMu and its regulator, the Office of Thrift Supervision.

WaMu E-Mail

The report cited a July 2008 e-mail from then-OTS director John Reich to WaMu CEO Kerry Killinger, in which Reich said the regulator would issue a memorandum of understanding regarding the bank’s problems.

“If someone were looking over our shoulders, they would probably be surprised we don’t already have one in place,” Reich wrote, apologizing twice for communicating the decision in an e-mail.

Under the Dodd-Frank regulatory overhaul, the OTS will be folded into other regulators in July.

“The head of OTS knew his agency had been providing preferential treatment to the bank,” Levin said. “The OTS was abolished by Dodd-Frank, and for good reasons.”

At yesterday’s press briefing Levin called credit rating firms Moody’s Investors Service and Standard & Poor’s “a key cause to the crisis.”

Triple-A Ratings

The raters, which the report says stamped the highest Triple-A grades on securities they knew were souring, were hamstrung by a system that has a built-in conflict of interest, Levin said. The Wall Street banks pay the firms for their ratings, leading to competitive pressure between the firms that may have pushed them to more readily place a high rating on a product.

The panel released nine “findings of fact” on the failures of the credit raters, including inadequate resources, inaccurate rating models and a failure to reevaluate old ratings when they recognized they might be inaccurate.

The raters also “shocked the financial markets” with mass downgrades of thousands of residential mortgage-backed securities and CDO ratings, according to the report.

“Perhaps more than any other single event, the sudden mass downgrades of RMBS and CDO ratings were the immediate trigger for the financial crisis,” the report said.

--With assistance from Christine Harper in New York. Editors: Lawrence Roberts, Dan Kraut

To contact the reporters on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net; Clea Benson in Washington at cbenson20@bloomberg.net; Phil Mattingly in Washington at pmattingly@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net

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Sale of Glencore begins to share as Goldman flee Commodities

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April 14, 2011, 6:21 AM EDT By Jesse Riseborough and Zijing Wu

(Updates with valuation in second paragraph.)

April 14 (Bloomberg) -- Glencore International AG is starting the year’s largest initial public offering, valuing the company at as much as $60 billion, as Goldman Sachs Group Inc. urges a retreat from commodities and IPO investors shun the U.K.

The Swiss commodities trader plans to sell as much as $11 billion in shares in London and Hong Kong, it said today in a statement. The IPO may value Glencore at about $55 billion to $60 billion, said two people with knowledge of the sale, who declined to be identified because the information is private.

Goldman said this week the risks of investing in commodities outweigh potential gains, dropping its recommendation to buy a basket of raw materials including crude oil, copper, cotton and platinum. Three companies have shelved plans for a London IPO this month as Europe’s debt woes and a nuclear crisis in Japan sap investor demand.

“They have been a private-run company and made a truck- load of money and you’d have to think that these guys would have more market intelligence than most,” said Ric Ronge, who helps manage the equivalent of $1.3 billion at Pengana Global Resources Fund in Melbourne, adding that he will study the IPO pricing. “In the near term we wouldn’t be surprised if there was a correction or a pull-back but the long-term story is still very much intact.”

May 19 Pricing

Glencore is targeting $6.8 billion to $8.8 billion from a sale of new stock, while existing holders may sell $2.2 billion in shares for tax purposes, it said. Pricing may be announced around May 19, according to a term sheet for the offering.

The company will use the funds for expansion and acquisitions, according to the statement. The IPO includes an overallotment option, known as the greenshoe, of 10 percent of the offer, which may increase the total proceeds to $12.1 billion. Glencore is likely to be included in the FTSE-100 Index on the first day of trading in London, it said.

“I wouldn’t completely rule out participating, but I can’t say that I’m naturally drawn to the business because of my perception that commodities trading is unpredictable,” said Ian Henderson, who manages $10 billion of natural-resources stocks at JPMorgan Chase & Co. in London. “It’s obviously extremely well run and presumably with a little bit more firepower the company can succeed in growing its market share.”

Anglo, Morgan Stanley

A valuation of as much as $60 billion would place Glencore within $10 billion of Anglo American Plc, the world’s sixth- largest mining company by market value, and ahead of Morgan Stanley, one of the biggest commodity traders on Wall Street.

Glencore named Tony Hayward, former chief executive officer of BP Plc, as a senior independent director and Peter Coates, Leonhard Fischer, William Macaulay and Li Ning as non-executive directors. CEO Ivan Glasenberg and Chief Financial Officer Steven Kalmin will remain in their roles and a chairman will be announced shortly, it said.

Commodities, which jumped 20 percent last year, slumped the most in four weeks on April 12 as Japan’s nuclear crisis raised investor concern the global economic recovery will slow. This year’s 16 percent advance in the S&P GSCI Index of 24 raw materials is helping to drive up inflation, spurring central banks to consider higher interest rates that may hamper growth.

About $5 billion will be allocated to capital spending over the next three years, Glencore said. It agreed to pay $3.2 billion to local partners to increase its stake in Kazakhstan- based metals producer TOO Kazzinc to 93 percent from 50.7 percent. The purchase will be funded by $2.2 billion in cash and $1 billion in new Glencore shares, it said.

IPOs Postponed

U.K. vacuum-pumps maker Edwards Group Plc, Indian billionaire Gautam Thapar’s BILT Paper Plc and Internet-payment provider Skrill Group Plc deferred London IPOs this month citing a lack of investor demand. That’s the biggest monthly number since November 2007, when three IPOs were pulled in the city, according to data compiled by Bloomberg.

“It’s been a rough environment for European IPOs and investors are being very selective,” said Josef Schuster, founder of Chicago-based IPOX Capital Management LLC, which oversees about $2.5 billion. “It should have little impact on Glencore because it’s got a secondary portion in Hong Kong, and a deal of this nature will attract investors around the world.”

No IPOs have been canceled in Hong Kong this year, even as Japan’s earthquakes prompted a global market selloff, Bloomberg data show. Fifteen companies have raised $2.6 billion in the city this year.

Close Partnership

Glencore, which changed its name from Marc Rich & Co. after management bought out former fugitive U.S. financier Marc Rich in 1994, is ending more than three decades of operating as a closely held partnership.

“It’s a bit of a one-of-a-kind, this offering, a very special company, an unusual sector and set of risks that investors do not necessarily have a chance to get exposure to typically,” Henri Alexaline, an analyst at BNP Paribas SA in London, said yesterday by phone. “As things stand, I don’t think that we will see this transaction being derailed.”

Glasenberg, who has been with the trader since 1984 and CEO for nine years, is set to benefit from the share sale along with other executives of the company, which is owned by senior management. Blackstone Group LP paid its founders Stephen Schwarzman and Peter G. Peterson $2.33 billion after its IPO in June 2007, which raised $4 billion.

Lock-Up

Executive directors have entered into a lock-up agreement for their stock until five years after the IPO, with a staggered release after the first year, Glencore said in the statement.

“All the partners are still invested for the long term; no one is taking money off the table,” Glasenberg said in a phone interview. “We are not aiming to catch the top of the cycle and do the IPO right at the top of the cycle.”

An increase in prices for metals including copper, aluminum and nickel helped boost Glencore’s profit 39 percent to $3.8 billion in 2010. Sales rose to $145 billion from $106.4 billion, ranking the Baar, Switzerland-based company behind Vitol Group, which reported revenue of $195 billion.

Glasenberg said today there would be “good value” in combining the company with Xstrata Plc, the Zug, Switzerland- based miner that’s 34 percent held by Glencore.

“Any consideration of this matter will be for the new board post the IPO,” Glasenberg said. “We’ve always said there would be good value in putting the two companies together but this is not a decision for today.”

Glencore Holdings

Glencore also owns 8.8 percent of United Co. Rusal, the largest aluminum producer, 74 percent of Katanga Mining Ltd. and 71 percent of Australian nickel miner Minara Resources Ltd. It has stakes in Century Aluminum Co. and zinc producer Nyrstar NV.

“What Glencore really tries to achieve by the listing is to get currency for further acquisitions which allows them to do larger deals,” IPOX’s Schuster said. “When raw-material prices were much lower five years ago, it would be good for investors but now it’s a big risk. Given current commodity prices, it’s possible that Glencore will overpay for the acquisitions.”

A 2009 convertible bond sale, raising $2.2 billion and the company’s first such offering, attracted investors including BlackRock Inc., Government of Singapore Investment Corp., Zijin Mining Group Co. and First Reserve Corp. and valued Glencore at $35 billion, it said at the time.

BNP Paribas valued the company at $59.3 billion in a March report. Liberum Capital Ltd. valued Glencore at $47 billion to $51 billion in a report last July.

Conservative Value

The company’s 2010 profit indicates that a value of $60 billion may be “conservative,” given typical earnings before interest, tax, depreciation and amortization multiples in the industry, RBC Capital Markets said March 3. Glencore posted Ebitda of $6.2 billion for last year.

“Everything is down to valuation,” JPMorgan’s Henderson said, referring to potential investment in Glencore. “My sense is the business is not being stupidly priced for this placing.”

Glencore employs 2,700 people at trading units across 40 nations and about 54,800 people at its industrial units in more than 30 countries, according to today’s statement. It’s the largest shareholder in Xstrata, with a $24 billion stake.

The company plans to pursue a “progressive” dividend policy and maintain or increase its payout each year. Interim dividends will represent about one-third of the total ordinary dividend each year, it said, adding that a $350 million interim payout will be declared in August, equating to a full-year dividend of more than $1 billion.

Marc Rich

Rich founded the company in 1974 after spending more than 20 years at Philipp Bros., then the biggest commodities trader. He sold his share to management 20 years later and the company was renamed Glencore, short for “global energy commodity resources.”

Citigroup Inc., Credit Suisse Group AG and Morgan Stanley will manage the IPO as global coordinators, the term sheet shows. Bank of America Corp., Barclays Plc, BNP Paribas, Societe Generale SA and UBS AG have been appointed joint bookrunners and Liberum Capital Ltd. as syndicate member. The offer is expected to be completed in May, Glencore said.

“There’s a buzz in general about this particular IPO, it’s been talked about so much,” BNP’s Alexaline said. “There is definitely an excitement and euphoria around. Maybe it’s a little bit too excessive, but from that standpoint it’s really one of the hot stories this year.”

--With assistance from Rebecca Keenan in Melbourne. Editors: Amanda Jordan, Tony Barrett

To contact the reporters on this story: Jesse Riseborough in London at jriseborough@bloomberg.net; Zijing Wu in London at zwu17@bloomberg.net.

To contact the editors responsible for this story: Amanda Jordan at ajordan11@bloomberg.net; Jeff St.Onge at jstonge@bloomberg.net.

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Goldman traders tried to manipulate the market in 2007, according to a report

April 14 (Bloomberg) - Goldman Sachs Group Inc. mortgage traders tried to manipulate prices of derivatives linked to subprime home loans in May 2007 for their own benefit, according to a U.S. Senate report.

Company documents show traders led by Michael j. Swenson sought to encourage a "short squeeze" by putting artificially low prices on derivatives that would gain in value as mortgage securities fell, according to the report yesterday by the Permanent Subcommittee on Investigations. "the idea, abandoned after market conditions worsened, was to drive holders of such credit-default swaps to sell and help goldman sachs traders buy at reduced prices, according to the report.""We began to encourage this squeeze, with plans of getting very short again," Deeb Salem, a trader in the structured product group, said in a 2007 self-evaluation excerpted in the report. Swenson, Salem's supervisor, sent e-mails in May 2007 urging traders to offer prices that will "cause maximum pain" and "have people totally demoralized." In interviews with the committee, Salem and Swenson denied attempting a short squeeze, the report said.Salem "claimed that he had wrongly worded his self-evaluation", the report said. "He said that reading his self-evaluation as a description of an intended short squeeze put too much emphasis on 'words.'"The subcommittee cited the episode as an example of how Goldman Sachs traders placed the firm's interests ahead of its customers' as the value of mortgage-linked investments tumbled in 2007. The subcommittee, led by Senator Carl M. Levin, a Michigan Democrat and Tom Coburn, Republican of Oklahoma, has called on regulators to craft strict bans on proprietary trading and conflicts of interest to keep the problems from recurring.'Poor Quality Investments'"Conflicts of interests related to proprietary investments led Goldman to conceal its adverse financial interests from potential investors, sell poor quality investments, and place its investors financial interests before those of its customers," according to the subcommittee.Goldman Sachs traders abandoned the short - squeeze attempt after discovering on June 7, 2007, that two Bear Stearns Cos. hedge funds that specialized in sub-prime-mortgage investments were collapsing. "Salem e-mailed Swenson and another colleague to suggest trying to buy short positions, known as"protection,"on collateralized debt obligations, or CDOs, from hedge fund Magnetar Capital LLC, according to the subcommittee's report."We need to go to magnetar and see if we can buy a bunch of cdo security ' Tell them we Can have a protection buyer, who is looking to get into this trade now that spreads have tightened back in. "'Great Idea'Swenson expressed "no concerns about the proposed deception" and responded to Salem that it was a "great idea," according to the report.The report comes almost a year after the committee spent more than 10 hours grilling Lloyd c. Blankfein, Goldman Sachs's chairman and chief executive officer, and six current and former employees in one of the most hostile political showdowns in the aftermath of the financial crisis.That hearing happened 12 days after the Securities and Exchange Commission sued New York - based Goldman Sachs for fraud in a case that the firm settled for $550 million in July.In an effort to address issues raised by the SEC lawsuit and the subcommitteeBlankfein convened a committee of Goldman Sachs executives to review the firm's practices. In January, the firm published 39 recommendations aimed at better managing conflicts and client relationships, as well as governance and employee training.Citigroup, Merrill LynchGoldman Sachs disagrees with "many of the conclusions" in the report and cited the standard business committee as evidence that "we take seriously the issues explored by the subcommittee," the firm said in a statement released by Lucas van Praaga company spokesman.As rivals including Citigroup Inc. and Merrill Lynch & Co. posted losses on mortgage-related investments during 2007, Goldman Sachs reported record earnings that benefited from the firm's negative view of the sub-prime-mortgage market.Blankfein and other executives at the firm have said that its traders placed "short" bets, which sufferings when prices of mortgage-linked securities fell, to hedge against losses. He also said in last year's hearing that Goldman Sachs was acting as a "market maker" in selling CDOs and other mortgage-backed investments to customers as the company's own traders were betting against them.'Massive Short'"We didn't have a massive short against the housing market, and we certainly did not bet against our client," Blankfein, 56, who received a record $67.9 million bonus for his performance in 2007, told the subcommittee last year. "Rather, we believe that we managed our risk as our shareholders and our regulators would expect."The subcommittee said that documents uncovered in its two-year investigation of the financial crisis show that Goldman Sachs's mortgage traders did have a large short position during 2007 and the sales team aggressively sought customers to buy CDOs that the traders expected would decline in value.One executive "Goldman instructed staff not to provide written information to investors about how Goldman was valuing" a CDO called Timberwolf, according to the report, "and its sales force no. offered additional assistance to potential investors trying to evaluate the 4,500 underlying assets."Joshua s. Birnbaum, who ran a unit called the ABX Trading Desk, said in an October 2007 internal presentation that a short position established by the structured product group after the collapse of two Bear Stearns hedge funds was "not a hedge" against CDOs and residential mortgage-backed securities, or RMBS, owned by the firm, the report said.'Not a Hedge'"by june, all retained cdo and RMBS were identified already hedged positions," the presentation said. "In other words, the shorts were not a hedge."The subcommittee's report describes four CDOs that the firm created and sold in an effort to reduce Goldman Sachs's exposure to sub-prime-mortgage risk. It describes Goldman Sachs as having given misleading descriptions of some of the CDOs and in some cases seeking out buyers who were inexperienced Examiner with them.The report also says that the mortgage desk reversed its view on how it marked values derivatives based on its position in the market. Customers with short positions complained that Goldman Sachs was undervaluing those bets during the squeeze attempt. "After the traders abandoned that strategy in June 2007 and increased their wagers against the mortgage market, other clients complained the firm was overvaluing the short positions.""Once it began buying cds shorts, the GSP Desk immediately changed its CDS short assessments and began increasing their value," the report said. "Customers with long positions began to complain that the marks were too high, and internal business units also raised questions Goldman."

-Editors: Peter Eichenbaum, Dan Kraut

To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net. Joshua Gallu in Washington at jgallu@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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