Goldman, Nomura heeded warnings before Venezuela bond deal

Mon Jun 5, 2017 1:11am EDT
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By Corina Pons, Marianna Parraga and Olivia Oran

CARACAS/NEW YORK (Reuters) - In early May, Goldman Sachs (GS.N: Quote) 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, according to people familiar with the talks.

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, according to an advisor to opposition lawmakers and a person familiar with the discussions. Both declined to be named because the talks were private.

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 criticized internationally for human rights abuses and economic mismanagement.(Graphic:

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 (9716.T: Quote) 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 U.S. lawmakers and raised concerns within the U.S. 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.   Continued...

A sign is displayed in the reception of the Sydney offices of Goldman Sachs in Australia, May 18, 2016. REUTERS/David Gray/File Photo