February 22, 2010Goldman Says ‘Nothing Inappropriate’ in Greek Swaps
Feb. 22 - (AP) Goldman Sachs Group Inc. did “nothing inappropriate” when it arranged currency swaps for the Greek government that reduced the country’s national debt by 2.37 billion euros ($3.2 billion), 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 U.K. lawmakers today. The swaps were “in conformity with existing rules and procedures.”
Corrigan became the first executive at the bank to speak publicly about the swaps after Wall Street’s most profitable securities firm was attacked by politicians including Germany’s ruling Christian Democrats, who questioned whether the firm helped Greece hide the size of its budget deficit to comply with the euro’s membership criteria. The bank made about $300 million from the Greek swaps, the New York Times reported Feb. 14.
“There was nothing inappropriate,” Corrigan told Parliament’s Treasury Committee. “With the benefit of hindsight, it seems to be very clear that the standards of transparency could have, and probably should have been, higher.”
The firm consulted with European Union regulators when it arranged the swaps in 2000 and 2001, he said. Eurostat officials said last week they only recently became aware of the contracts. Goldman Sachs was “by no means the only bank involved” in arranging the contracts, he added.
Cross-currency Swaps
Goldman Sachs helped the Greek government to hedge bonds sold in euros and yen in 2000, the New York-based bank said in a statement on its Web site earlier today. The country sought to cut its borrowings in overseas currencies after deciding to join the euro because a rising dollar or yen would inflate its debt levels in euros, the firm said.
The bank then arranged new cross-currency swaps and restructured its other swaps with Greece at a historical exchange rate in December 2000 and June 2001. The transactions reduced the country’s deficit by 0.14 percentage points and lowered its debt as a proportion of gross domestic product to 103.7 percent from 105.3 percent, according to Goldman.
Concern about Greece’s ability to finance its deficit and debt roiled financial markets since the government revealed the country had a budget shortfall of 12.7 percent last year, more than four times the limit allowed for those countries using the euro. Eurostat, the EU accounting watchdog ordered Greece last week to provide information on its swaps as it probes whether the country used derivatives to hide its true deficit.
‘Nothing Terribly New’
Greece, whose burgeoning budget deficit caused it to fail the criteria for joining the single European currency in 1999, joined the euro in 2001. Member nations must keep deficits at less than 3 percent of gross domestic product and trim national debt to less than 60 percent of GDP under the pact.
“Governments on a fairly generalized basis do go to some lengths to try to ‘manage’ their budgetary deficit positions and manage their public debt positions,” Corrigan said. “There is nothing terribly new about this, unfortunately. Certainly, those practices have been around for decades, if not centuries. We have to keep that perspective.”
Feb. 22 - (AP) Goldman Sachs Group Inc. did “nothing inappropriate” when it arranged currency swaps for the Greek government that reduced the country’s national debt by 2.37 billion euros ($3.2 billion), 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 U.K. lawmakers today. The swaps were “in conformity with existing rules and procedures.”
Corrigan became the first executive at the bank to speak publicly about the swaps after Wall Street’s most profitable securities firm was attacked by politicians including Germany’s ruling Christian Democrats, who questioned whether the firm helped Greece hide the size of its budget deficit to comply with the euro’s membership criteria. The bank made about $300 million from the Greek swaps, the New York Times reported Feb. 14.
“There was nothing inappropriate,” Corrigan told Parliament’s Treasury Committee. “With the benefit of hindsight, it seems to be very clear that the standards of transparency could have, and probably should have been, higher.”
The firm consulted with European Union regulators when it arranged the swaps in 2000 and 2001, he said. Eurostat officials said last week they only recently became aware of the contracts. Goldman Sachs was “by no means the only bank involved” in arranging the contracts, he added.
Cross-currency Swaps
Goldman Sachs helped the Greek government to hedge bonds sold in euros and yen in 2000, the New York-based bank said in a statement on its Web site earlier today. The country sought to cut its borrowings in overseas currencies after deciding to join the euro because a rising dollar or yen would inflate its debt levels in euros, the firm said.
The bank then arranged new cross-currency swaps and restructured its other swaps with Greece at a historical exchange rate in December 2000 and June 2001. The transactions reduced the country’s deficit by 0.14 percentage points and lowered its debt as a proportion of gross domestic product to 103.7 percent from 105.3 percent, according to Goldman.
Concern about Greece’s ability to finance its deficit and debt roiled financial markets since the government revealed the country had a budget shortfall of 12.7 percent last year, more than four times the limit allowed for those countries using the euro. Eurostat, the EU accounting watchdog ordered Greece last week to provide information on its swaps as it probes whether the country used derivatives to hide its true deficit.
‘Nothing Terribly New’
Greece, whose burgeoning budget deficit caused it to fail the criteria for joining the single European currency in 1999, joined the euro in 2001. Member nations must keep deficits at less than 3 percent of gross domestic product and trim national debt to less than 60 percent of GDP under the pact.
“Governments on a fairly generalized basis do go to some lengths to try to ‘manage’ their budgetary deficit positions and manage their public debt positions,” Corrigan said. “There is nothing terribly new about this, unfortunately. Certainly, those practices have been around for decades, if not centuries. We have to keep that perspective.”
AP
