Bizarre Stories On How Goldman Sachs Screwed Up With Libya

How Goldman Lost $1.3 Billion Of Libyan Funds And Then Almost Made Libya One Of Its Biggest Shareholders

When Libya launched its sovereign wealth fund in 2007, it asked several banks to manage money for it.

Goldman Sachs was one of them.

Between January and June of 2008, the Libyan Sovereign Wealth Fund, controlled by Colonel Gaddafi himself, paid Goldman "1.3 billion for options on a basket of currencies and on six stocks" including Citi, UniCredit SpA, Banco Santander, Allianz, Électricité and energy company Eni SpA, the WSJ reported.

When Lehman Brothers collapsed and credit markets froze in 2008, the Libyan investment with Goldman was virtually wiped out.

According to internal memos seen by the WSJ ,

The underlying securities plunged in value and all of the trades lost money, according to an internal Goldman memo reviewed by the Journal. The memo said the investments were worth just $25.1 million as of February 2010—a decline of 98%.

Obviously the Libyans were furious with the bank. Fund employees said Goldman had misrepresented the investments and traded "without proper authorization."

Threats against Goldman bankers got so bad that the bank had to hire security for its employees.

In the end, the bank didn't want its relationship with Libya to go sour -- or to frighten other sovereign wealth funds away -- so it offered a range of six options for Libya to recoup its money, one of which included making the sovereign wealth fund one of Goldman Sachs' biggest shareholders.

In May 2009, Goldman proposed that Libya get $5 billion in preferred Goldman shares in return for pumping $3.7 billion into the company... Goldman offered to pay the Libyan Investment Authority between 4% and 9.25% on the shares annually for more than 40 years, which would amount to billions of dollars more.

After four all-day meetings in July 2009, the two sides agreed to a rejiggered deal that would make back Libya losses in 10 years. Such a deal, which also could have left the fund with a Goldman stake, would have needed to be run past the Federal Reserve. That left both Goldman and fund officials worried about its viability.

In the end, however, negotiations, the last of which occurred in June last year, led to no concrete deal.Prior to the investment going sideways, the fund had a good relationship with its colleagues at Goldman.

In fact, there was one trader in particular that they really loved: Driss Ben-Brahim.

At the time, Ben-Brahim was "Goldman's Arabic-speaking emerging-markets trading chief, who ran one of its most profitable trading desks and was rumored to be among its highest-paid employees," the WSJ reported. "To the Libyans... the main attraction was Driss Ben-Brahim."

Ben-Brahim, a Moroccan-Austrian educated in France, was an INSEAD grad who began his career at Goldman in 1994, making partner 10 years later.

"It is thought the bulk of his money has been earned speculating on the fall of the dollar, the seesawing prices of Japanese bonds and betting on movements in inflation rates," the Times has reported.

"We were in awe of Driss," a former Libyan Investment Authority executive told the WSJ. "He was like a rock star…while we were making peanuts. We felt honored by his presence."

Ben-Brahim made headlines in 2004 when he was awarded a £30 million bonus. At the time, a friend said:

He has taken on some really big risks but has enjoyed great success in 2003. He is the person everyone is talking about and he has been the most profitable trader around for the past few years. He deserves some recognition for his work.”

The same Times piece also reported,

Little is known about Ben-Brahim, who is thought to have an Arab father and an English mother. He is said to have one of the sharpest minds in the City and is “always laughing”, according to colleagues at Goldman Sachs.

Two years later, Ben-Brahim's bonus was rumored to have eclipsed the record 2004 figure by £20 million -- he was reportedly awarded £50 million as a bonus that year, but Goldman denied the story.

His wife Heli hails from Iran, and the couple have two children. A neighbor in Kensignton in London, told the Daily Mail: "I know Driss through banking. He is a lovely guy, his son plays football with mine occasionally."

He left Goldman in October, 2008. He's now a managing director at GLG Partners.



The Bizarre Story Of Libya And Goldman Sachs

The hot story of the day: Back in the day, Goldman Sachs managed some money for the Libyan Sovereign Wealth Fund. When their trades went bust, there were discussions for Libya to actually take a stake in Goldman Sachs.

It never happened, but the idea was that Libya would get a sweetheart deal on some preferred shares, with a nice dividend. Goldman's thinking was that it didn't want to lose future sovereign wealth business.

But the Goldman/Libya story is not that unique, really.

Time and again, we saw during the crisis banks take on assets that technically were off balance sheet. Citi has to absorb the losses of the SIVs. Bear Stearns had to absorb the losses of its big MBS hedge funds and so on.

This is just a minor, amusing example but the bottom line is that bank balance sheets are often implicitly larger than they appear.