Bloomberg News

Goldman Sachs Discloses Risk to Credit Derivatives Tied to European Debt

February 28, 2012

Goldman Sachs Group Inc. signage is displayed on the floor of the New York Stock Exchange in New York, U.S. Photographer: Jin Lee/Bloomberg

Goldman Sachs Group Inc. signage is displayed on the floor of the New York Stock Exchange in New York, U.S. Photographer: Jin Lee/Bloomberg

Goldman Sachs Group Inc. (GS), the fifth- biggest U.S. bank by assets, disclosed for the first time the gross value of credit-default swaps the firm purchased and sold relating to Greece, Ireland, Italy, Portugal and Spain.

At the end of 2011, Goldman Sachs had sold $142.4 billion of single-name swaps, contracts that pay out in the event of a default, on the five countries, the firm said yesterday in an annual filing with the U.S. Securities and Exchange Commission. The company also had purchased contracts with a gross notional value of $147.3 billion on the nations’ debt, the filing shows.

Regulators and investors have encouraged Wall Street banks to improve disclosure of potential losses from the five countries at the center of Europe’s debt crisis. New York-based Goldman Sachs previously had reported only its so-called funded exposure to the debt of those nations, excluding commitments or contingent payments such as credit-default swaps.

Goldman Sachs also said that “legally enforceable netting agreements” would reduce the amount of credit-default swaps purchased on the five countries to $21.1 billion and the amount sold to $16.2 billion. Those so-called notional amounts exclude collateral as well as derivatives from outside those nations that could mitigate the risk, according to the filing.

The bank’s total credit exposure to the five countries was $2.93 billion as of Dec. 31, according to the filing. The firm’s “market exposure,” which includes positions in bonds, stocks, credit derivatives and other securities, was $580 million.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.


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