Friday, September 25, 2009

How Many Divisions Has Goldman?

"Given its vast reserves and seemingly healthy economy, a default by China's government or one of its tentacles should be one of the lesser concerns for international markets. ... There is no official comment; terrified international bankers are silent. But reports in the local press and some elaboration by participants suggest that efforts by the country's large shippers, airlines and power companies to cope with high oil prices by taking out futures contracts produced steep loses as the market reversed and prices fell. ... If the contracts were arranged outside China through subsidiaries in Hong Kong, Singapore or London, which is common, then they were almost certainly done under non-Chinese laws that are unlikely to by sympathetic to deliberate deadbeats", Economist, 3 September 2009, link"

"China's government on Monday offered public encouragement to state-owned companies challenging foreign banks over huge losses from derivative contracts, a move that bankers say has raised the risks of dealing with some of China's largest enterprises. ... In a statement on its Web site, the State-owned Assets Supervision and Administration Commission said it supported moves by unnamed Chinese enterprises to seek recourse for their losses in structured financial derivative contracts tied to the price of oil and reserved the right to file lawsuits itself. ... With concern already rising in recent weeks that Beijing might challenge the fuel-derivative losses, bankers have been scurrying to protect themselves. One day last week, trading in certain contracts all but shut down in China, bankers say. Now, bankers are discussing how to impose stiffer collateral requirements for Chinese airlines and other companies that seek derivative contracts. ... In early August, China Eastern Airlines Corp., Air China Ltd. and China Ocean Shipping (Group) Co. sent letters to six international investment banks warning that certain transactions 'may be void, invalid or unenforcecable,' said a person familiar with the letters. Among the banks understood to have received such letters are Deutsche Bank AG, Goldman Sachs Group Inc. [GSG], JPMorgan Chase & Co., Citigroup Inc. and Morgan Stanley, according to three people familiar with the situation. ... Lawyers said Beijing's statement is startling. The government is 'actively encouraging Chinese state-owned companies to cut their losses by taking various actions, including legal actions,' said Alan Wang, a partner at Freshfields Bruckhaus Deringer LLP", my emphasis, James Areddy, Laura Santini and Shen Hong at the WSJ, 8 September 2009, link:

What nonsense. Hong Kong courts will enforce judgements Beijing doesn't want enforced? How may divisions have the counterparties? Does GSG think this is AIG? Bankers are terrified by Beijing, but not by Washington, why? Is GSG a "deliberate deadbeat" which courts are supposedly unsympathetic to?

GSG knows how to collect its money. Have Uncle Sam go to war with China! Why shouldn't China's enterprises renege? Unc will default on his debts to China. Will Unc bail GSG out of this mess too? This is not AIG, Lloyd Blankfein. Tread very carefully here. Things "happen" in China. Perhaps to GSG personnel. Don't go to China yourself. Send an emissary, like Zimbabwe Ben. He's expendable.


svend said...

Did you see this:


Could be a problem, no?

Independent Accountant said...

Thanks for the lead. I was not aware of this Kansas case. There have been a few rulings like this in bankruptcy courts around the US, but the Kansas case is more significant. It has the potential to affect all foreclosures in Kansas. If California's, Florida's and New York's highest courts follow Kansas, the banks holding this paper could be in bigger trouble than they think.

Anonymous said...

Uhm... chain of custody issues? That has been floating around for a while... it's explosive...

As for GS and China... why be worried IA?

GS always hedges its risk... they say they laid off their exposure to AIG... they say that they would have only lost $100 million if AIG fell down and couldn't pay... AND they got $4.8 billion from the Fed/Treasury.

Since they played the US government so nicely why would they feel threatened by the Chinese?

Oh... no Hank Paulson there you say?

But surely they laid off all the risk for fuel swaps with Chinese counterparties... it's such a big market...

Na don't worry... those Goldman boys are just the smartest people ever put on the planet.