Now raising intellectual capital

Derivatives league table


Goldman Sachs is moving up the derivatives charts—with a bullet.

In the latest ranking of US banks with large derivatives exposure, Goldman moves up from fourth place to second, according a report from the Office of the Comptroller of the Currencey. The notional value of Goldman’s derivatives contracts at the end of the first quarter was $39.9 trillion, up from $30.2 trillion in the fourth quarter of 2008.

Goldman leapfrogged over Citigroup and Bank of America. The total value of derivatives contracts is down a bit at Citi and holding steady at BofA compared to the fourth quarter. That’s not too surprisingly, given that those two banks continuing problems with troubled assets on their balance sheets.

But derivatives contracts are down too at JPMorganChase, the king of the derivatives mountain. Total notional value at JPMorgan fell to $81.1 trillion from $87 trillion.

Now Goldman still has a way to go to catch-up to the leader. But with Lehman Brothers and Bear Stearns out of the picture, it looks like Goldman means business.

Goldman’s derivatives puzzle


Earlier today I posted an item saying that Goldman Sachs is hard as ever to figure out, based on the kind of information (or lack thereof) that it publishes about its operations.  I focused on a little-known Goldman real estate management company called Archon Group.

And now comes derivatives guru Janet Tavakoli with a nice followup, noting that Goldman offers few details in regulatory filings about its derviatives business, despite having some big exposure to those often complex investment contracts.

No fix for the derivatives monster


It’s still not clear if the Obama administration has a plan for dealing with the derivatives monster, which is one of the biggest problems regulators must confront in dealing with the potential collpase of a “too big to fail” financial institution.

The administration’s financial regulatory reform package would give the FDIC, and in some cases the SEC, broad authority to transfer a firm’s derivatives book to a “bridge instititution” to avoid “termination of the contracts by the firm’s counterparties.” But that may be easier said then done.

Et tu Schwab?


Discount brokerage Charles Schwab may be facing a Lehman-sized headache.

It appears some Schwab brokers were actively selling so-called structured notes–derivative-like investments–that were issued by the now bankrupt Lehman Brothers. The structured notes were pitched as principal protected, meaning investors might not make a lot of money if a strategy failed, but they wouldn’t lose their initial investment either.

The only problem with the sales is pitch that the Lehman issued structured notes were guaranteed by Lehman. The notion that an investors’ prinicipal investment was 100% protected went out the window when the Wall Street firm filed for bankrupty last fall.