Shanny Basar
29 Aug 2008
29 Aug 2008
Goldman Sachs is buying $1.2bn (€0.8bn) in loans and mortgage servicing assets after the bank’s chief financial office said that acquiring businesses that administer collections and foreclosures is “critical” for firms wanting to profit from the distressed market.
Popular, a Puerto Rican-based financial services company, said in a statement it has agreed to sell loan and servicing assets of its US mortgage subsidiary to various Goldman affiliates.
The Puerto Rican bank said it expects to report a loss of approximately $450m in connection with the transaction but it will provide more than $700m in additional liquidity and significantly reduce its US sub-prime assets.
Goldman bought US sub-prime mortgage servicing business Litton Loan Servicing in December.
Mortgage servicing companies collect payments for lenders and have access to detailed information on individual borrowers. Ownership of these businesses gives investment banks and other investors looking to profit from the distressed market the intelligence they need to decide what bonds to buy.
Goldman Sachs’ chief financial officer David Viniar told delegates at Credit Suisse’s Global Services Conference in February that acquiring mortgage servicing businesses was “critical” for firms wanting to profit from the distressed mortgage market.
Viniar said: “When we look out over the next several years and say there is going to be a lot of assets, a lot of distressed assets, we hope to be able to take advantage of them.”
Expanding on his theme after being asked how Goldman Sachs intended to play its part in the restructuring of the US mortgage industry, he said: “One of the things Goldman Sachs has generally looked for around the world are distressed assets. And certainly in that part of it, we would like to be; we will be a buyer of distressed assets if people are sellers at the right price, of course.”
Viniar added: “As I said, having the ability to service them is completely critical to being able to do that and having the information to analyse critically.”
Goldman has continued to report profits since the start of the credit crisis despite making writedowns of $4.3bn according estimates from Keefe, Bruyette & Woods, the financial services boutique.
KBW said Lehman Brothers has made writedowns of $9.3bn, Morgan Stanley $14.4bn and Merrill Lynch $39.9bn.
In December, the Wall Street Journal reported that a bet by Goldman’s mortgage group that sub-prime securities would fall in value generated nearly $4bn of profits during the year ended November 30, according to people familiar with the firm's finances. Those gains erased $1.5bn to $2bn of mortgage-related losses elsewhere in the firm.
The Puerto Rican bank said it expects to report a loss of approximately $450m in connection with the transaction but it will provide more than $700m in additional liquidity and significantly reduce its US sub-prime assets.
Goldman bought US sub-prime mortgage servicing business Litton Loan Servicing in December.
Mortgage servicing companies collect payments for lenders and have access to detailed information on individual borrowers. Ownership of these businesses gives investment banks and other investors looking to profit from the distressed market the intelligence they need to decide what bonds to buy.
Goldman Sachs’ chief financial officer David Viniar told delegates at Credit Suisse’s Global Services Conference in February that acquiring mortgage servicing businesses was “critical” for firms wanting to profit from the distressed mortgage market.
Viniar said: “When we look out over the next several years and say there is going to be a lot of assets, a lot of distressed assets, we hope to be able to take advantage of them.”
Expanding on his theme after being asked how Goldman Sachs intended to play its part in the restructuring of the US mortgage industry, he said: “One of the things Goldman Sachs has generally looked for around the world are distressed assets. And certainly in that part of it, we would like to be; we will be a buyer of distressed assets if people are sellers at the right price, of course.”
Viniar added: “As I said, having the ability to service them is completely critical to being able to do that and having the information to analyse critically.”
Goldman has continued to report profits since the start of the credit crisis despite making writedowns of $4.3bn according estimates from Keefe, Bruyette & Woods, the financial services boutique.
KBW said Lehman Brothers has made writedowns of $9.3bn, Morgan Stanley $14.4bn and Merrill Lynch $39.9bn.
In December, the Wall Street Journal reported that a bet by Goldman’s mortgage group that sub-prime securities would fall in value generated nearly $4bn of profits during the year ended November 30, according to people familiar with the firm's finances. Those gains erased $1.5bn to $2bn of mortgage-related losses elsewhere in the firm.
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