Tavakoli Structured Finance LLC

The Financial Report

By Janet Tavakoli

LBBW Sues Goldman Sachs and TCW Over Davis Square VI

Landesbank Baden-Wuerttemberg, a German state-owned bank, is suing Goldman Sachs over a $37 million loss on its investment in its share (a tranche) of a CDO called Davis Square VI. TCW, the manager for all of Goldman Sach’s Davis Square deals, is also being sued:

“Goldman knew at the highest levels of its organization that its representations to LBBW Luxemburg that the notes merited triple-A ratings and were high grade were blatantly false,” the Stuttgart-based bank said. “Goldman committed fraud and, or, was negligent in marketing and selling the notes to LBBW Luxemburg.”

Goldman Sachs Sued Over German Bank’s $37 Million Loss on CDO,” by Edvard Petterson and Patricia Hurtado, Bloomberg News, October 4, 2010.

Separately, French Bank Societe Generale bought protection from AIG on two tranches of the Davis Square VI CDO, which Goldman Sachs created (structured) and underwrote. On November 10, 2009, I uncovered that information, and it was the first time this information was in the public domain. (“Goldman’s Undisclosed Role in AIG’s Distress,” November 10, 2009)

The German bank makes an excellent point. The portfolio backing Davis Square VI before the September 2008 initial taxpayer bailout of AIG, can be found on my web site via this cut-and-paste link: Davis Square VI: https://www.tavakolistructuredfinance.com/DS6.pdf

In an earlier commentary, I discussed Davis Square IV, another one of the AIG deals: “Congress Exposes Potential Profiteering in AIG’s Deals: Delay Enabled Further Cover Up,” January 28, 2010.

Taxpayers might again ask why the Federal Reserve was so eager to bail out all of AIG’s deals (credit default swaps) linked to problematic CDOs at 100 cents on the dollar. The largest beneficiary of that largesse was Goldman Sachs, whose former officers rose to influential positions in the U.S. Treasury and Federal Reserve Bank and were at Goldman’s helm when these deals were created.

The taxpayer funded bailout of AIG very likely helped Goldman Sachs to avoid potential lawsuits, among other lucrative benefits. (See “Goldman Sachs: Bullies on the Block,” September 13, 2010.)

Endnote: The complaint is Landesbank Baden Wuerttemberg v. Goldman, Sachs & Co. and TCW Asset Management Company,10-7549, U.S. District Court, Southern District of New York. Available via this cut-and-paste link: https://www.tavakolistructuredfinance.com/LBBW.pdf

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