Bet with Goldman cost train firm €40m in a day
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Friday 08 August 2014
The disastrous financial bet known as a “swap” that London Goldman Sachs bankers sold to a publicly owned train company in Portugal, exposed by The Independent last month, left the Portuguese taxpayer €40m (£32m) in the red on the very first day.
New details of Metro do Porto’s deal, which ended up costing the country tens of millions of euros, show that its bosses signed off on a “worst case scenario” risk agreement stating that the company stood to lose up to €318m.
According to the Financial Times, the officials agreed to the “risk disclosure” even though the swap was meant to be a prudent way of offsetting the interest on a €126m loan. It is not clear whether the €40m day-one loss position equates to a profit for Goldman. However, as the Independent investigation revealed, the swap saw Metro do Porto down €120m on the deal within six months.
It has also emerged that Goldman was charging 1 per cent a year for placing the €126m loan plus a “credit exposure charge” of 1.5 per cent a year for the swap that went with it.
Goldman says it has a good and ongoing relationship with the Portuguese government.
The Independent’s investigation found that Goldman and Nomura had made huge profits selling Metro do Porto swaps to reduce the interest charges on the €126m loan. The bet went so badly for Metro do Portothat it soon ended up owing more on the swap than the total loan itself.
Both banks declined to comment.
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