Business World

Friday 24 January 2020

Fed chief to review Goldman Sachs relations with Greece

Fed chief Ben Barnanke Photo: Getty Images
Fed chief Ben Barnanke Photo: Getty Images

Craig Torres

Federal Reserve Chairman Ben Bernanke said the central bank is reviewing the arrangements of Goldman Sachs and other companies with Greece.

“We are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece,” Bernanke said today in testimony before the Senate Banking Committee in Washington.

Greek bonds slid today, pushing the premium investors demand to hold the nation’s 10-year securities instead of German bunds to the most in more than two weeks, amid concern the country’s credit ratings may be cut.

Goldman Sachs helped Greek officials raise $1bn of off-balance-sheet funding in 2002 through swaps, which EU regulators said they knew nothing about until recent days.

Goldman Sachs did “nothing inappropriate” when it arranged currency swaps for Greece that reduced the nation’s national debt by €2.37bn, a top executive said.

“They did produce a rather small, but nevertheless not insignificant reduction, in Greece’s debt-to-GDP ratio,” Gerald Corrigan, chairman of Goldman Sachs’s regulated bank subsidiary, told a panel of UK lawmakers February 22. The swaps were “in conformity with existing rules and procedures.”

Credit ratings

Corrigan is the former president of the Federal Reserve Bank of New York. The Federal Reserve gained oversight powers over Goldman Sachs following the company’s conversion to a bank holding company in September 2008.

Yields on two-year Greek bonds rose to the highest since February 9 after Standard & Poor’s and Moody’s Investors Service said they may cut their ratings if Greece fails to implement a plan to reduce its budget deficit.

Pierre Cailleteau, managing director of sovereign risk at Moody’s, said a downgrade may come by the end of March.

“Greece is able to make headlines every day, and for now volatility is here to stay,” said Michiel de Bruin, who helps manage $28bn of assets as head of euro government bonds at F&C Investments in Amsterdam.

“The market is also taking into account the possibility of a double dip in economic growth, and that’s causing risk aversion.”

The cost of insuring against default on Greek government bonds rose for a fourth day, with the credit-default swaps on the debt rising 10 basis points to 392, the highest in more than two weeks, according to CMA DataVision.

The Greek 10-year bond increased 12 basis points to 6.64pc as of 3:02pm in London.


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