Goldman heeded warnings before Venezuela bond deal
In early May, Goldman Sachs turned down a request from Caracas to convert $5 billion in sovereign bonds into marketable securities partly because it would mean dealing directly with a Venezuelan state bank. The complexity of the operation was the primary concern for Goldman, but the Wall Street bank also weighed reputational risks after opposition politicians called it to warn about the potential damage of being seen as aiding President Nicolas Maduro’s administration.
The warnings were part of a campaign by opposition lawmakers, economists and lawyers to cut off Wall Street financing for Maduro.
Aware that his cash-strapped administration was seeking funds, they dispatched letters in recent months to the heads of 13 major banks, including Goldman Sachs boss Lloyd Blankfein, flagging the risks of financing a government which has been criticised internationally for human rights abuses and economic mismanagement.
Last week, though, Goldman Sachs confirmed its asset management arm had bought $2.8 billion of another bond issued by Venezuela’s state oil company PDVSA at a steep discount.
Japanese investment bank Nomura bought $100 million worth, also at a cut rate.
The deals drew condemnation from Julio Borges, the head of Venezuela’s opposition-run Congress, and some US lawmakers and raised concerns within the US administration.
In a statement, Goldman defended the purchase, saying its asset-management arm acquired the bonds “on the secondary market from a broker and did not interact with the Venezuelan government”.
Because of that, the bond purchase did not receive top-level scrutiny.
The bank’s group-wide standards committee, which usually reviews controversial transactions, did not look at it, a person familiar with the matter said.
The omission highlights the challenge Goldman still faces in managing controversial deals despite overhauling its governance structure in the wake of the financial crisis.
Executives at Goldman’s headquarters in New York were taken aback by the backlash, a second person said.
The asset management division may review how it handles trades that involve high risk jurisdictions, the first person said.
Nomura has declined to comment about the purchase but a person familiar with the deal said its relatively small size and the use of a broker convinced the bank it was acceptable. Nomura, like Goldman, had been approached by Caracas before. In April, the Japanese investment bank ended discussions about a repurchase deal where it would take up $3 billion in the PDVSA bonds in return for a $1 billion cash infusion for Venezuela’s central bank, which held the bonds.