Goldman Sachs Revokes Fabrice Tourre's United Kingdom Banking licence

Tuesday, April 20, 2010

By Christine Seib, Katherine Griffiths and Helen Power

Goldman Sachs yesterday pulled the UK licence of the man at the centre of fraud charges brought against it in the United States, within hours of Britain’s financial regulator opening an inquiry into the allegations.

The move came as Goldman’s top lawyer admitted that the US investment bank had tried to offload its share of the toxic mortgages that it has been accused of mis-selling to investors. Goldman had emphasised previously that it had continued to own the investment.

The admission by Gregory Palm surfaced as the bank reported a bumper set of profits and bonuses for the first three months of this year.

Goldman’s shares dropped 1.8 per cent as it revealed an expectation-beating $3.4 billion (£2.2 billion) first-quarter net profit, up 91 per cent on last year. Net revenue was $12.7 billion. The bank put aside $5.5 billion for compensation in the first quarter, equal to $166,000 per employee.

The results followed the announcement by the Financial Services Authority that it had opened an investigation into the bank. A few hours later, Goldman removed Fabrice Tourre’s FSA registration.

Harvey Knight, a lawyer at Withers who used to work at the FSA, said that the timing suggested the City regulator had put pressure on Goldman to suspend Mr Tourre.

Mr Tourre, 31, is accused along with Goldman of misleading investors over a complex investment based on sub-prime mortgages. Mr Tourre was in New York when the alleged fraud took place but moved to Goldman’s London office in 2008.

Goldman maintains that Mr Tourre did nothing wrong.

In a conference call after the publication of Goldman’s first-quarter earnings, Mr Palm admitted for the first time that the bank tried to find a buyer for its estimated $100 million exposure to Abacus 2007-AC1.

The SEC alleges that Mr Tourre allowed Paulson & Co, a hedge fund, to construct Abacus as an imploding investment, then mis-sold this to two investors, ACA Capital Management and IKB, the German bank.

Goldman, which has strenuously denied the allegations, has pointed to its own $90 million loss on Abacus.

It became clear yesterday, however, that the bank had not intended to hold the investment. Mr Palm said: “I believe we did attempt to see if there was any interest on the other side.”

The bank said that it had been contacted by the FSA.

Referring to events after Goldman made a submission formally refuting the claims made against it by the Securities and Exchange Commission in America, Mr Palm said: “At some point they usually tell you they believe they still have a case or they don’t believe what you’re saying, and you’re contacted and told that, but that never happened.”

Barclays investors urged to vote ‘no’

Investors in Barclays have been urged to vote down the bank’s remuneration report at its annual meeting next week (Katherine Griffiths writes).

Pirc, which analyses companies’ corporate governance, criticised the bank over a new pay policy which could produce “potentially excessive” awards.

Barclays’ chief executive, John Varley, and its president, Bob Diamond, both waived their bonuses for 2009 amid widespread criticism of bankers’ pay.

Mr Diamond did receive £26 million for his shares in BGI, the bank’s fund management business, which was sold to America’s BlackRock. Barclays has also given Mr Diamond a shares-based bonus deal over three years that could be worth £20 million at completion.

Pirc said of Barclays’ pay schemes: “We consider the performance conditions to be insufficiently stretching ... We do not consider that shareholders are given sufficient information.” Pirc is also advising shareholders to vote against the reappointment of Sir Richard Broadbent as chairman of Barclays’ remuneration committee.


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