"Goldman Offers Loans to Stretched Employees

Topics:Stock Market
Companies:Goldman Sachs Group IncBy: Louise Story, The New York Times, The New York Times | 17 Mar 2009 | 07:39 AM ET Text Size Goldman Sachs got its bailout. Now some of its bankers, those aristocrats of Wall Street, apparently need a bit of a bailout too.

Goldman, which accepted billions of taxpayer dollars last fall and, as learned Sunday, was also a big beneficiary of the rescue of the American International Group, is offering to lend money to more than 1,000 employees who have been squeezed by the financial crisis. The loans, offered via e-mail last week, could range from a few thousand dollars to hundreds of thousands.

Working at Goldman has long been regarded as a sure path to riches. But Goldman’s employees
are losing money on their personal investments — particularly in Goldman’s own elite investment funds, which have been considered one of the perks of working at the bank.

Now these funds have stumbled, and some Goldman employees who financed their gilded lifestyles by borrowing in good times are suddenly short on cash needed to meet commitments to their personal investments in the funds. “It’s a problem with the culture of spending,” said Gustavo Dolfino, the president of Whiterock Group, a Wall Street recruitment firm. “No matter how much you have, you spend like you have a lot more.”

The development comes at a tumultuous time for Goldman Sachs, which is struggling to recapture its former glory — and profits — since it became an old-fashioned bank holding company. Goldman is one of the eight banks that were told to accept taxpayer money, and it is trying to pay that money back soon.

At least one of the vehicles, in a group known as the Whitehall funds, sank more than 50 percent last year. Another let its investors withdraw their money this year — at a significant loss."

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With a focus on real estate and private equity investments, the funds — which also include Goldman Sachs Capital Partners — have traditionally performed extremely well, sometimes increasing sevenfold in a few years. Goldman even promoted its employee participation in the funds as a selling point to outside investors.

Some Goldman employees got rich before the markets collapsed, allowing them to invest several million dollars in the funds, often on a leveraged basis. Only three years ago, Goldman paid more than 50 employees more than $20 million apiece. In 2007, its chief executive, Lloyd C. Blankfein, collected one of the biggest bonuses in corporate history — nearly $70 million.

But one former Goldman partner estimated that a quarter of the bank’s roughly 100 partners are now worth $5 million or less because of losses on their company stock and other investments. Last year, the bank’s seven top executives received no bonuses. One of them, Jon A. Winkelried, resigned from his position as co-president a few weeks ago, saying he wanted to spend more time with his family. His estate on Nantucket is on the market.

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It is unclear how many Goldman bankers and traders will take up the bank’s offer. The funds periodically require investors to add more money, and late last year, Goldman’s most senior management and board began to realize some employees might have trouble living up to this obligation after receiving low bonuses, according to a person briefed on the situation.

Employees in the funds are contractually obligated to meet requests for more capital. Several funds have such capital calls scheduled for April. Employees who fail to make the payments risk losing their jobs, according to a person familiar with the situation.

The new loans at Goldman are being offered to help employees meet capital demands from the internal funds and cannot be used for other personal needs, according to people familiar with the matter.

A spokesman for Goldman Sachs [GS 93.78 -0.12 (-0.13%) ] confirmed the existence of the loan program but declined to elaborate. The funds that are the most troubled were raised right before the financial crisis. Goldman raised $20 billion in its most recent private equity fund and some $9 billion in the Whitehall real estate funds in 2007 and 2008.

About a third of the money in the funds typically comes from Goldman and its employees, and since 1991, the bank and its employees have accounted for $7.5 billion of the $26 billion in the Whitehall funds.

Some employees now wish they had not invested. Properties like the Helmsley building, which Goldman helped purchase in 2007, have nose-dived in value. Stuart Rothenberg, the former head of Goldman’s real estate group, warned just before he retired last year about Goldman’s real estate exposure and said Goldman became “for all intents and purposes, almost an enlarged hedge fund,” according to Reuters.

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Beyond the drop in the stock market, there are various reasons cash is tight for some Goldman employees. Some traders, for instance, are facing tax bills for bonuses paid in early 2008. They already spent that money, and their bonuses early this year were too small to foot the bill.

Others who borrowed against their stock holdings have been forced to sell at losses or put up more collateral against their loan. Goldman is one of many banks that has issued margin calls on its employees.

The employee loans, of course, may not turn out to be a good investment for Goldman, though Goldman can take employees who do not pay to court or seize money from their brokerage accounts.

To some, the development underscores how many wealthy Wall Streeters got in over their heads.

“Most people investing in Whitehall thought this was a sound and probably even a conservative investment,” said Janet Hanson, a former Goldman employee who is the founder of 85 Broads, an organization for women that takes its name from the address of Goldman’s headquarters. “No one saw the entire thing collapsing.”

thank you. if you quit, i'm calling back the wild llama i sent over to you as a present.

As a "CEO" my opinion is that somehow in American business we have arrived at the notion that "If you can, you should" and if you don't, well then you're an idiot.

My words to live by "Just because you can, does NOT mean you should".

keep up the good work.
S

First, you can't believe there's any free and easy money ever, do your own homework.

Second, the Govt (both Dems and Repubs, there's no difference) so deeply manipulates and intervenes in this so-called free market more than anyone knows, and I have PROOF. So, don't ever bet against the Federal Government when playing the market.

Given that, who do you think ends up with all the MONEY?

This has stopped being a comedy show Thursday night and became a debate show.

Two years ago I had a very sophisticated gentleman walk in my office and ask about foreclosures for sale before it was common language in our industry. This was not entirely unusual, but something was different about this customer. He asked my opinion of where I thought the market was headed in the near future. At the time we were experiencing the slow down, but pretty much everyone thought it was just a normal cyclical downturn in the market. My answer to him was that for the first time I wasn't sure, but for no explainable reason I felt like "the powers to be" were not telling us the whole picture, something was missing. He went on to tell me that, oddly enough, economics had been a hobby of his since college and while at a economics convention he asked the guest speaker Greenspan in a crowded room, what he thought about over the counter discounted derivatives and how they were going to impact the housing market? Greenspan spent half an hour talking to this man that he did not know from Adam's house cat. This peculiar man replied, "…it is a 100 times worse than what they are telling us!". He said that the problem was not assessing the value of the mortgage notes, but that they can't find them in the derivatives, because they're based on algorithms that no one understands. At the time I thought, O.K. here we go. I bet this guy can tell me who shot Kennedy as well and that Jimmy Hoffa was buried underneath my office. Now, I think back and think this guy was a genius, when really if I had just made it a point to educate myself, all of this would have seemed pretty black and white or maybe not.

Another memorable moment was when a cleanly shaved man my age walked in my office wanting to pressure wash my building. He had just moved to the area and had started this business. After listening to his pitch, I asked the yuppie, "What gives? You don't exactly fit the bill for someone in the pressure washing business." He told me that he had retired from investment banking with Wachovia and was starting his own business. This was about the time the housing market was at a stand still.
I asked him about derivatives and how we got here? He told me that in 2002, he had never seen anything like it before. The underwriters couldn't approve the loans fast enough. Furthermore, the government was forcing their hand. He told me that they could not get the money from the Feds for the "A" paper if they did not meet the criteria of which 26% of their portfolio had to qualify as minority loans, forcing them to open banks in inner-city and rural areas to acquire these loans. If you think back to this time, do you not remember banks sprouting up on every corner like weeds? He saw the writing on the wall and decided to get out of the banking business. This should have been the prime time of his career. Another genius that I chose to ignore. Good thing I don't carry guns. I would have pulled the trigger a long time ago.

Considering that you still might be awake, the moral to these two stories is confirming Jon's accusation ,that the ones in power knew all along leaving our dreams of retirement in their wake. I firmly now believe this is exactly what has happened over the past two decades. The upside is that hopefully we have learned from all of this and we all need to do our home work and make the Barny Franks and the Madoffs of the world accountable with our system and most importantly with OUR MONEY!

He should be Bernie Madoff's roommate now!!!!

http://amazngdrx.blogharbor.com/blog/_archives/2009/3/13/4121155.html