Vampire Squid Loses HK$340,000,000 (perhaps)

Generali

I am a collector of stupid market mistakes that cost banks a fortune and I've come across a good one today. (link)

Goldman Sachs sold an asset known as an exchange traded warrant. This would pay out some money using the following formula in the prospectus:

(Closing Level – Strike Level) x Index Currency Amount x Exchange Rate

what they meant to use was:

(Closing Level – Strike Level) x Index Currency Amount / Exchange Rate

If Goldmans are forced to settle at the price in the prospectus rather than the price they meant to print, the cost is estimated to be HK$350,000,000 rather than HK$10,000,000!

Goldman has made an offer to buy back the warrants from holders for a 10% premium on their purchase price, plus a fixed payment to cover broker fees. In resisting a settlement tied to the published formula, Goldman cites a clause in the prospectus that lets an issuer change terms “of a formal, minor or technical nature, which is made to correct an obvious error”.

This argument has not won over the 124 warrant-holders.

HKD340,000,000 is about £27,000,000.

Loughton_Monkey

Surely Goldmans can weasel their way out of this one. "Er... when we said times the exchange rate, we meant the rate to be $HK v $US and not $US v $HK......"

Failing that, I assume Mr Goldman is off to Argentina. Where will Mr Sachs go?

Generali

Loughton_Monkey wrote: »

Surely Goldmans can weasel their way out of this one. "Er... when we said times the exchange rate, we meant the rate to be $HK v $US and not $US v $HK......"

Failing that, I assume Mr Goldman is off to Argentina. Where will Mr Sachs go?

I'm not sure the sums involved are enough to skip the country and anyway, Messers Goldman and Sachs have long since gone to see the giant vampire squid in the sky.

The politicians are getting involved and it looks like they want Goldmans to pay up on this one.

FTBFun

£27 million is chicken feed for Golden Sacks, surely?

Generali

FTBFun wrote: »

£27 million is chicken feed for Golden Sacks, surely?

It'll cost someone their bonus and probably their job too.

Goldmans isn't as big as people assume. They are highly profitable per employee though.

purch

£27 million is chicken feed for Golden Sacks, surely?

Yes, but for an organisation whose sole purpose is to make money, any loss is considered a failure, as will the person/persons responsible.

sabretoothtigger

If its well run each part of the business has to justify themselves and make a profit. If its a screw up it'll be run like GM where one dept is used as a crutch to subsidise the others.
A trait of RBS apparently was that the entire company was rolled up and run as one big blob, octopus will lose a leg if it turns bad


The GS share has been fairly terrible since it last gained big July 09 to autumn, bad bet since
This reflects on our Barc partly I think

http://www.google.co.uk//finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1306872000000&chddm=155595&chls=IntervalBasedLine&cmpto=NYSE:BCS&cmptdms=0&q=NYSE:GS&ntsp=0

Backbiter

If you pay peanuts you get monkeys. They should pay their staff more and they won't make costly mistakes. Or so I'm told by bankers.