Friday 15 December 2017

US banks tightlipped on $5tn of debt protection

BANKING

Thomas Molloy

JPMORGAN Chase and Goldman Sachs have sold protection on more than $5 trillion (€3.7tn) of debt globally but won't tell shareholders what they have insured, according to media reports yesterday.

The two merchant banks have made a fortune from selling investors insurance on bonds but are staying silent on how many of the insured bonds were issued by Greece, Italy, Ireland, Portugal and Spain.

US financial news wire Bloomberg reported that investors were being kept in the dark, despite mounting fears that some of these countries might not be able to repay the bonds.

"If you don't have to, then generally people don't see the advantage to (releasing such information)," said Richard Lindsey, a former US regulator.

He added: "But on the other hand, if there was a run on Goldman Sachs tomorrow because the rumour was that they had exposure to Greece, then you'd see them produce those numbers."

Another New York-based securities firm called Jefferies gave details of every position it held on European debt earlier this month after its shares plunged more than 20pc. By contrast, Goldman Sachs discloses almost no detail.

JPMorgan Chase and Goldman Sachs believe that they are protected from risk because they have used a complex array of bets in an attempt to offset the risk.

While these bets work in theory, there have been so few large financial disasters that the mathematical models designed to measure risk may be inaccurate.

Irish Independent

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