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Goldman disputes Senate panel's findings on housing bets

The bank contends that the subcommittee's report overstates its bets against the subprime housing market during the crisis and misstates its profits from them.

June 07, 2011|By Nathaniel Popper, Los Angeles Times
  • The Senate panel's report says Goldman Sachs made $3.7 billion in 2007 from one department that was betting against the housing market. A bank employee said it made only $500 million from its mortgage bets. Above, the building that houses Goldman's headquarters in New York.
The Senate panel's report says Goldman Sachs made $3.7 billion in… (Scott Eells, Bloomberg )

Goldman Sachs is challenging the findings of a Senate investigation that criticized the bank for making billions by betting against the housing market during the financial crisis.

The bank contends that the Senate's Permanent Subcommittee on Investigations presented a misleading picture of Goldman's behavior during the crisis in a report released in April. The Department of Justice said it was reviewing the report and the New York district attorney reportedly sent Goldman a subpoena this month requesting more information about the report's allegations.

The subcommittee, headed by Sen. Carl Levin (D-Mich.), said that the Wall Street bank made big profits during the financial crisis by betting against the subprime housing market at the same time that it was advising some of its clients to make investments in that market. The report also said that Goldman executives misled Congress about the extent of its bets.

The bank is telling investigators that the report overstates the bank's bets against the housing market and misstates the bank's profits, according to a Goldman employee who was not authorized to speak publicly about the matter. The firm has floated its criticism of the report to a number of media outlets, marking a departure from its usual reticent approach to investigations.

The inquiries stemming from the Senate investigation are the latest legal problems confronting Goldman, which came through the financial crisis in much better shape than many of its competitors. Last year, the bank paid $550 million to settle a Securities and Exchange Commission lawsuit accusing it of selling clients mortgage-backed securities that it knew would go bad.

More recently, the New York attorney general has reportedly begun investigating the way Goldman and other Wall Street banks packaged and sold mortgage securities during the crisis.

The allegations in the Senate report center on complaints that Goldman profited during the crisis while its clients and competitors lost billions.

The bank's stock has followed a steady downward trajectory since the report's release and is down 20.4% on the year, more than most of its Wall Street competitors' shares. Some investors are nervous that the investigations eventually could hurt the company's ability to do business, analysts said.

The report said that the bank made $3.7 billion in 2007 from one department that was betting against the housing market — and $1.1 billion in net revenue on its mortgage operations — out of $11.6 billion in total revenue that year. The Goldman employee said the bank made only $500 million from its mortgage bets, while its total revenue was $45.9 billion.

The employee said that the subcommittee investigators added up the bank's short bets against the housing market and did not include the bank's long bets in the other direction.

When the report was released, Levin said that Goldman's executives, — including Chief Executive Lloyd Blankfein — misled his committee when they said that the bank did not have a large bet against the housing market.

At the time, the bank said in a statement, "We have consistently said that the testimony we gave was truthful and accurate."

A spokeswoman for Levin's subcommittee declined to comment on the bank's new push.

In a separate effort to distance itself from the mortgage meltdown, Goldman announced Monday that it was selling its troubled mortgage servicing unit, Litton Loan Servicing, which it acquired in 2007.

Litton was among the mortgage servicing businesses criticized for the way they handled homeowners struggling to make payments. Another mortgage servicer, Ocwen Financial Corp., is buying Litton for $264 million.

Goldman's stock fell 1.1%, or $1.43, on Monday to $133.90.

nathaniel.popper@latimes.com

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