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2010-0701-AIG-Goldman-supporting-docs

2010-0701-AIG-Goldman-supporting-docs

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Published by: englishbob618 on Feb 14, 2011
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01/30/2013

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 AIG/Goldman SachsCollateral Call Timeline
DATE 
December 14, 2006
 
March 23, 2007 May 11, 2007
 
May 2007
 
 SUMMARY 
Email thread re 12/06 decisionby Goldman to reduce subprimeexposure/get closer to home.Timberwolf Offering Circular Craig Broderick (GS) email re downwardadjustment of marks & adverse impact onclients.Goldman sends marksto Bear Stearns Asset Management (“BSAM”)
DESCRIPTION 
 
12/14/06 email from DanielSparks (GS) re subprime risk meeting: he writes that decision made to reducesubprime risk by selling ABX,selling inventory, marking theCDO warehouse more regularly.
 
12/14/06 David Viniar (GS)email response: he writes “mybasic message was let’s beaggressive distributing thingsbecause there will be very goodopportunities as the marketsgoes into what is likely to beeven greater distress and wewant to be in position to takeadvantage of them.” PSI.TAB 1From 4/07 through 6/07, Goldmanwas soliciting Basis Yield Alpha Fund(“Master”) (“BYAFM”) to purchase theTimberwolf CDO. In the offeringcircular, Goldman discloses that “thereis no established trading market forthe Securities.” This risk warning wastypical and included in other Goldmanoffering circulars.TAB 2Craig Broderick sent an email to severalindividuals, in which he wrote that Daniel Sparks(GS) and the mortgage group “were in the processof considering making significant downwardadjustments to the marks on their mortgageportfolio esp. CDOs and CDO squared” and that “this will potentially have a big P&L impact on us,but also to our clients due to the marks andassociated margin calls on repos, derivatives andother products.” He also wrote that Goldmanneeded to “survey our clients and take a shot at determining the most vulnerable clients, knock onimplications, etc.” He noted the significant downward adjustments to the marks wereimportant to senior management, writing “this isgetting lots of 30
th
floor attention right now.”TAB 3Goldman sends marks toBear Stearns that reportedly valuedsecurities in the BSAMhedge funds at 50-60cents on the dollar.TAB 4
 
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June 7, 2007 July 11, 2007 July 26, 2007 July 27, 2007BSAM hedge funds announce NAVdeclineTelephone call between AndrewForster (AIGFP) and Alan Frost (AIGFP)Goldman notifies AIGFP that a margincall on the SSCDS is on the way$1.8 billion Margin call
BSAM hedge funds at revise the 4/07 NAVfrom minus 6% to minus 19%TAB 5 at 24-25Andrew Forster (AIGFP) tells Alan Frost (AIGFP) that (1) he is focusing on CDS andsubprime,” (2) “every f---ing … ratingagency …[came] out with moredowngrades,” (3) “about a month ago Iwas like, you know suicidal,” (4) “theproblem that we’re going to face is that we’re going to have just enormousdowngrades on the stuff we got,” (5)AIGFP will “have to mark” its books, and(6) “we’re [unintel] f---ed basically.”TAB 6On 7/26/07, Andrew Davilman(Goldman) emailed Alan Frost (AIGFP),informing him that Goldman would bemaking a margin call on the CDS it purchased from AIGFP. The next day,Goldman sent AIG an invoice requesting$1.8 billion in collateral.TAB 7
 
Goldman sends AIGFP a collateral invoicefor $1.8 billion with valuations attached.Goldman purchases $100 million of CDSprotection on AIG.
 Attached to thischronology is a listing of each Goldmancollateral call on AIGFP, each collateral  posting by AIGFP and each purchase of CDS protection on AIG by Goldman.
TAB 8
 
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July 30, 2007 August 1, 2007 August 2, 2007 August 10, 2007Telephone call between AndrewForster (AIGFP) and John Liebergal(AIGFP)Tom Athan (AIGFP) email to AndrewForster (AIGFP)Goldman reduces its margin call from$1.8 billion to $1.2 billion. AIGFP posts $450 million of collateraland the companies execute a side-letter agreement 
Forster (AIGFP) tells John Liebergal(AIGFP) that (1) Goldman margin call “hit out of the blue and [] a f---ing numberthat’s well bigger than we ever plannedfor,” (2) Goldman’s prices were“ridiculous” but that the value “could beanything from 80 to sort of, you know 95,”(3) he would not buy bonds at 90 cents onthe dollar “because they could probablygo low” and because it would requireAIGFP to mark its books. He specificallystated, “we can’t mark any of ourpositions, and obviously that’s what savesus having this enormous mark to market.If we start buying the physical bonds back then any accountant is going to turnaround and say, well, John, you know youtraded at 90, you must be able to mark your bonds then.”TAB 9Athan writes in email to Forster that (1)he had a “tough conf call with Goldman,”(2) Goldman was “not budging and areacting irrational,” (3) Goldman “insist[s]on ‘actionable firm bids and offers’ tocome up with a ‘mid market quotation,’”(4) he agreed on the call that “we neededto escalate this within AIG FP,” (5) “weneed Joe [Cassano] to understand thesituation 100% and let him decide how hewants to proceed,” (6) he “played almost every card I had, legal wording, market practice, intent of the language, meaningof the CSA, and also stressed the potentialdamage to the relationship and GS saidthat this has gone to the ‘highest levels’ at GS and they feel that the CSA has to work or they cannot do synthetic tradesanymore across the firm in these types of instruments,” and (7) GS called this a “test case” many times on the call.TAB 10On 8/2/07 Andrew Forster (AIGFP)emails Joe Cassano (AIGFP) and PierreMicottis (AIGFP) a revised spreadsheet from Goldman showing a reduction in themargin call from $1.8 billion to $1.2billion. Forster states in the email that “they [Goldman] realized they needed touse mids not bids” (meaning mid point between bid and ask).Attached is a listing of marks from Merrilland Goldman that shows Goldman marksare lower. For example, Goldman valuedthe Broderick CDO at 0.85 but Merrillvalued it at 0.98. Goldman valued theDunhill ABS CDO at 0.85 but Merrillvalued it at 0.99. Merrill’s estimatedvalues did not represent actual bids oroffers.Goldman CDS protection on AIG now $300million.TAB 11AIG posted $450 million on 8/10/07.Goldman and AIG execute a “side letteragreement” in which it was written that the parties had not resolved the margincall dispute and that Goldman’sacceptance of the $450 million did not constitute an agreement that the $450million satisfied the required collateralposting.Goldman CDS protection on AIG nowtotals $575 million.TAB 12