Goldman sets out defence of CDO trades

GOLDMAN Sachs yesterday mounted its most robust defence yet of the risks taken during the financial crisis, insisting that the bulk of its transactions were undertaken in response to the needs of its clients rather than to “bet against” them.

In an eight-page letter to shareholders attached to its annual report, Goldman stressed its role as a financial intermediary, essential to maintaining market liquidity.

Goldman has long fielded criticism over mortgage-backed collateralised debt obligations (CDOs), after clients claimed the bank sold the instruments without warning of the risks involved, then reaped enormous profits when the market collapsed.

But the bank yesterday strongly refuted the claims, adding: “Clients come to us as a market maker because of our willingness and ability to commit our capital and to assume market risk. We are responding to our clients’ desire either to establish, or to increase or decrease, their exposure to a position on their own investment views. We are not ‘betting against’ them.”

The bank also defended its pay policies in the face of criticism over runaway compensation in the banking industry, claiming that its 2009 compensation ratio – 35.8 per cent, the lowest ever since the firm became a public company – “reflected the extraordinary events of 2009”.

“We have not been blind to the attention on our industry and, in particular, on Goldman Sachs,” the bank insisted.