#Libya's Bankers: Goldman Sachs, J.P.Morgan Chase, Citigroup, Carlyle Group

As the US Treasury Department froze $30 billion assets of the Gaddafis and the Libyan government, all I wanted to know was "Who are the bankers who have managed that assets?"

My guess was Goldman Sachs, and either Merrill Lynch or J.P.Morgan Chase. I got two right.

From Huffington Post's Marcus Baram (3/1/2011):

NEW YORK -- U.S. President Barack Obama's executive order freezing $30 billion in assets of Muammar Gaddafi, his family and the Libyan government could impact several U.S. banks and private equity firms, including Goldman Sachs, Citigroup, JPMorgan Chase and the Carlyle Group. The Obama administration described it as the largest seizure of foreign funds in U.S. history.

The oil-rich country's sovereign wealth fund, the Libyan Investment Authority, controls at least $70 billion in fixed assets and reserves. It has invested the bulk of its money in European banks and businesses, including Dutch-Belgian bank Fortis, Italian bank Unicredit, the Pearson publishing empire, Italian defense firm Finmeccanica SpA, an oil-production sharing agreement with BP and even a slice of the Italian soccer team Juventus.

In the wake of the Bush administration's lifting of sanctions against Libya in 2004, following Gaddafi's agreement to give up weapons of mass destruction, American businesses and private equity firms also came flocking to the North African country to court government and LIA officials. As The Huffington Post reported last week, a broad coalition of U.S. oil companies, defense manufacturers and businesses lobbied the U.S. government to repair relations with the longtime international pariah and to take advantage of business opportunities in the country.

The secretive Libyan Investment Authority has reportedly invested hundreds of millions of dollars in Goldman Sachs Asset Management funds, including a loan fund designed to invest in new hedge funds set up by the Kuwait Investment Authority. Goldman Sachs already has a relationship with Libya -- in 2008, Goldman was the first U.S. bank to get a contract with the country following the removal of sanctions, when it was hired by Libya's central bank to provide information on its behalf to credit rating agencies. A spokesperson for Goldman Sachs did not return calls seeking comment.

The Libyan government, including LIA, has also banked with Citigroup, according to several sources familiar with the matter. A spokesperson for Citigroup declined to comment on the bank's interactions with the Treasury Department's Office of Foreign Assets Control, which is in charge of carrying out Obama's order regarding Libyan assets.

JPMorgan Chase reportedly handles much of the LIA's cash and some of the Libyan central bank's reserves. The summer after then-Secretary of State Condoleezza Rice visited Gaddafi in 2008, LIA gave "mandates to some of the international banks, including JPMorgan to manage their funds in the interbank money markets, according to Vanity Fair.

The LIA fund's general consultant has been Mercer Investment Consulting, a unit of Marsh & McClennan, the global risk consulting and advisory firm. A spokesperson for Marsh declined comment. The fund set up a $2 billion investment fund with the Qatar Investment Authority to invest in Libya, Qatar and Western markets, which could complicate the effort to freeze the LIA's assets.

Two years ago, the Carlyle Group's co-founder and managing director, David Rubenstein, and Blackstone chief executive Steven Schwarzman traveled to the Libyan capital of Tripoli to help celebrate the wedding of Mustafa Zarti, the deputy director of the LIA, in a massive tent set up on the outskirts of the city, reported the Financial Times. And when Gaddafi's son and longtime likely successor, Saif al-Islam, visited New York in November 2008, Schwarzman hosted a lunch for him at the Blackstone CEO's Park Avenue apartment. The younger Gaddafi was also honored on that trip by Carlyle's retired chairman, former defense secretary Frank Carlucci, who hosted a dinner for him in a private room at the City Club.

Thanks to the efforts of Rubenstein, who first traveled to Libya in 2006, the Carlyle Group received funds from the LIA. A spokesman for Carlyle declined comment. A spokesman for Blackstone told The Huffington Post, "We have no investments in Libya. They have no investments with us."

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J.P.Morgan Chase Fighting 10,000 Lawsuits

and $4.5 billion short on reserves to cover the litigation costs, according to the article on The Street yesterday (2/28/11).

The proceedings are the result of "faulty" (fraudulent would be the word) mortgage origination, securitization, servicing and foreclosure processes by the bank, who is the originator, securitizer, servicer, trustee of REMICs all in one, just like other TBTF Wall Street banks:

NEW YORK (TheStreet) -- JPMorgan Chase is a defendant in more than 10,000 legal proceedings and may be $4.5 billion short of reserves needed to cover those costs in a worst-case scenario, the firm said in a regulatory filing on Monday.

The New York-based bank's legal woes range from individual actions against JPMorgan Chase to class actions with "potentially millions" of litigants to "regulatory/government investigations." The suits include common law tort and contract claims, statutory antitrust claims, securities claims and consumer protection claims, the bank said in its 10-K filing with the Securities and Exchange Commission.

...In a conference call last month, JPMorgan CEO Jamie Dimon predicted that securitization lawsuits alone will be a long, difficult battle.

"It is going to be years before this plays out and this litigation is going to be fought almost securitization by securitization," Dimon said. "There is almost no other way to do it."

No kidding, Jamie. J.P.Morgan Chase has inherited the securitization done by Bear Stearns and Washington Mutual, as well as their own.

The article also mentions how the other TBTF banks are faring in terms of litigation reserves:

• Citigroup: $4 billion short

• Bank of America: $1.5 billion short

• Wells Fargo: $1.2 billion short

With J.P.Morgan Chase's $4.5 billion, the total reserve deficit for these four banks is $11.2 billion. Considering Wells Fargo got Wachovia and Bank of America got Countrywide, their reserve shortage look too small.

Particularly for Wells Fargo, as the bank is one of the 3, 4 banks that act as the trustee of REMICs that supposedly hold underlying mortgages. What are the duties and responsibilities of a REMIC trustee? Among others, it is supposed to verify and confirm that the mortgages are properly transferred to the REMIC within the time frame specified in the pooling and servicing agreement, and that the mortgages meet the standard set out in the agreement.

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Slap on the Wrist: Citigroup vs Toyota

Toyota is facing a fine of over $16 million, maximum allowed by law, by the U.S. federal government which just happens to own two auto companies.

Toyota faces record $16.4M fine in gas pedal recall
(4/6/2010 USA Today)

"The government said Tuesday it has proof that Toyota knew about a safety problem involving sticking gas pedals for four months before it recalled vehicles and said it will penalize the automaker the maximum $16.4 million for the delay.

"That would be a record penalty for foot-dragging. The highest so far: $1 million against General Motors in 2004 for taking too long to fix potentially faulty windshield wipers.

"The law says an automaker must tell the government about a safety defect and begin a recall within five business days after discovering the problem.

""We now have proof that Toyota failed to live up to its legal obligations," Transportation Secretary Ray LaHood said Monday. "Worse yet, they knowingly hid a dangerous defect for months from U.S. officials and did not take action to protect millions of drivers and their families. For those reasons, we are seeking the maximum penalty possible under current laws."" [Emphasis is mine. The article continues.]

Gee, remember those huge SUVs made by GM, Ford, and Chrysler that rolled over and injured or killed drivers and passengers? I don't remember exactly but I am sure the automakers were grilled in Congressional hearings and fined, with their engineers jailed for unsafe designs.

And I'm sure the subcontractor who manufactures those gas pedals (or has them manufactured somewhere, probably in China) will be severely punished.

And there's Citigroup, paying a fine of $650,000 to Finra for its stock lending practice from 2005 to 2008 November, when it finally stopped. Damage done, the market crashed. The U.S. federal government also happens to own a huge chunk of Citigroup.

Citigroup Fined $650,000 by Finra for Stock-Lending Violations
(4/6/2010 Bloomberg via Business Week)

"April 6 (Bloomberg) -- A Citigroup Inc. brokerage will pay $650,000 to settle regulatory claims it inadequately supervised a system for loaning customers’ shares to short sellers.

"Citigroup Global Markets gave clients insufficient information about terms of its Direct Borrow Program, in which their hard-to-borrow stocks were pooled to accommodate short selling from 2005 to 2008, the Financial Industry Regulatory Authority said in a statement today. The firm’s marketing materials weren’t “fair or balanced” and lacked key information, the regulator said.

"The program arranged more than 4,000 loans from 2,300 clients, including retail investors, according to Finra. The New York-based bank suspended the program on Nov. 30, 2008, and returned borrowed shares to their owners, the regulator said."

I wonder if Citi even borrowed the shares.

Bear raid attacks using naked shorting, credit default swaps on companies' debts, CDOs, CDS on CDOs (for details on how they are actually used, read about David Einhorn's stragegies here) killed large financial firms, triggered credit crisis, global stock market crash, and global recession that destroyed many trillion dollars of wealth.

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Credit Default Swaps market update

US Credit Default Swaps Little Changed, CDX Trading Shows (Bloomberg.com)

Watch out for this for the market direction in general, and financial stocks in particular (C, BAC).

That's where the heavy betting by big traders seems to be: CDS market.

They are speculating on the company's ability to repay its debt (or the government's willingness to protect the debt holders). Some people believe this was what caused the crash in financial stocks last year, and that's what they are doing now again.

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Interesting tidbits in financials

He's often over the top even in the doom & gloom department, but he often has very curious information that I don't see anywhere else.

Banks Must Brace for New Losses by Jim Willie, CB. Editor, Hat Trick Letter April 16, 2009

Here are some points that caught my attention. I don't even know they are independently verifiable, but curious. (Do your own due diligence, always.)

• "A movement pervaded Lower Manhattan offices to formally call in all Citigroup shorted shares on loan. " - so that could be the reason why some investors/funds have been frantically covering (or trying to cover) their short positions in the past week or so...
• "Other ‘C’ share games were played that enabled preferred shares to serve as collateral on common share shorts, as the plebeian shares descended to $1/share value." - the hedge funds have been long preferred and short common on C and other commercial banks deemed vulnerable, that is somehow a known piece of information. But I didn't know that preferred shares were used as collateral. So then their common short was naked shorting?
• "The story behind the scenes that captured my attention centered on German demands to return all their gold bullion held in custodial accounts on US soil." ... [To cover the March physical delivery of gold] "Deutsche Bank saved the COMEX bacon with a last minute 850,000 ounce delivery, courtesy of the Euro Central Bank at the eleventh hour. " - no wonder Germans are nervous.

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