Report: Goldman Angered Libya After $1.3 Billion Investment Vanished
Just three years before U.S. planes began bombing forces loyal to Col. Muammar al-Qaddafi, Wall Street heavyweight Goldman Sachs (NYSE:GS) reportedly enraged the Libyan leader by managing a $1.3 billion investment that lost a whopping 98% of its value.
According to The Wall Street Journal, Goldman attempted to soothe the strained ties by offering Libya a chance to sink $5 billion into the company in a deal that would have made the country’s sovereign wealth fund one of Goldman’s largest shareholders.
The report sheds new light on the complicated relationship last decade between Libya before it became ostracized and Western banks, especially Goldman.
Libya’s sovereign wealth fund gave Goldman $1.3 billion to invest in early 2008, just months before the financial crisis that caused the market to meltdown and nearly collapsed Goldman itself.
According to the Journal, the investments included options on a basket of currencies and on six stocks: Citigroup (NYSE:C), Italian bank UniCredit, Spanish bank Banco Santander, Germany’s Allianz, French electric company Electriciete de France and Italian energy company Eni.
Needless to say, those investments proved ill-timed. Citi’s stock, for example, started 2008 off at around $282, but plummeted to just $71.40 by the end of the year and eventually required a massive government bailout.
The $1.3 billion Libyan investment lost an incredible 98% of its value, leaving it at just $25.1 million as of February 2010, the paper reported.
In a July 2008 meeting, a deputy chairman from the sovereign wealth fund cursed and threatened Goldman bankers “like a raging bull,” prompting Goldman to arrange for security to protect its employees until they left Libya the next day, the Journal reported.
After the meeting, Libya demanded restitution and made vague threats of legal action, the paper reported. A Goldman internal investigation disputed Libya’s claims of misrepresenting the investment deals and making trades without proper authorization.
Still, Goldman feared the episode would tarnish its reputation with other sovereign wealth funds so over the next two years it made six different proposals for how Libya could offset the losses. In July 2009, the two sides reached a deal that would have left Libya with a stake in Goldman and would have required approval from the Federal Reserve, the paper reported.
However, Goldman changed its mind and Libya declined subsequent proposals it deemed too risky, such as one to invest $5 billion into corporate debt.
The Libyan sovereign wealth fund had about $53 billion in assets last June, but this year the U.S. froze roughly $37 billion in Libyan assets, including some funds still managed by Goldman, the Journal reported.