SIV restructuring glimmer of hope for Goldman

Source: Exec Digital USA

Date :6/17/2008 6:20:03 AM

Goldman Sachs Group Inc, the world's biggest securities firm, has very nearly completed a long-awaited rescue of a US$7 billion structured investment vehicle (SIV), as it adjusts to the credit crunch.

The deal to restructure the SIV, formerly run by British hedge fund Cheyne Capital, comes as reports surface that Goldman’s second-quarter profit fell a less-than-estimated 11 percent.

Goldman Sachs Group Inc and receivers Deloitte & Touche LLP agreed on a restructuring plan for the US$7 billion SIV earlier today, June 17.

The deal will see a portion of the assets of its SIV Portfolio Plc auctioned off, according to reports.

The auction will set the price at which any unsold assets will be transferred to a new company set up by Goldman. The new company will then issue notes backed by the assets.

Deloitte has been trying to reorganize Cheyne Finance since September after the SIV was shut out of the commercial paper market and forced to sell assets at a loss.

Other SIVs, including Golden Key, Whistlejacket and Rhinebridge, are expected to follow Cheyne's model, being restructured by Goldman.

Less-Than-Estimated 11%

This restructuring comes at a time when the firm has announced second-quarter profit fell a less-than-estimated 11 percent as gains in commodities, prime brokerage and asset management offset fixed-income losses.

Net income declined to US$2.09 billion, or US$4.58 a share, in the three months ended May 30 from US$2.33 billion, or US$4.93, a year earlier.

This is Goldman's second straight quarterly profit drop as losses on mortgage- related securities spread to other debt.

Faring better than most

It has fared better than most in the credit crunch. Exec has reported over the last week on huge losses at both AIG and Lehman Brothers as the crunch continues to bite.

Goldman shares were the only one of the world's 10 biggest investment banks to advance in 2007, when the company reported a fourth consecutive year of record profits. So far in 2008 the stock is down 15 percent.

The finalization of the restructuring deal provides a glimmer of hope for the revival of the market in troubled mortgage assets that are at the core of the global credit crisis.