Yahoo Finance Goldman (GS) in Murky Waters Over Speculative Spanish Trades
Already engulfed in 2020’s heightened scandal related to the multibillion-dollar 1Malaysia Development Bhd (1MDB), Goldman Sachs GS is now facing another complaint as Europe’s largest wine exporter, J. Garcia Carrion SA, has sued the former over manipulation of currency trades, summarizing its case against the bank to the Financial Conduct Authority (FCA) in the U.K. The news was reported by Bloomberg.
The complaint filed by lawyers for J. Garcia Carrion, charges that Goldman Sachs International “incited the sale of unauthorized speculative derivatives unconnected to J. Garcia Carrion’s business, with obscure implicit fees, and without regard to the relevant regulation relating to communicating risks and the volume of the client’s business.”
The complaint asserts that Goldman Sachs made big bucks at the Spanish firm’s expense in its dealings with the firm’s former chief financial officer, Felix Villaverde, who has been accused along with his son, of duping the business. Villaverde’s lawyer declined to comment.
According to people familiar with the matter, J. Garcia Carrion has estimated the derivatives mispricing to be of to such an extent that Goldman Sachs could have booked gains worth nearly $25 million on the trades under question. However, as per them, J. Garcia Carrion has realized losses aggregating to 2.5 million euros between 2019 and September 2020 on those trades.
J. Garcia Carrion has summoned upon other European regulators to inspect on the trades and in a statement issued this week said that the banks “involved, such as BNP Paribas and Goldman Sachs International, haven’t complied with the applicable banking regulation, so these facts have been notified to the Bank of Spain and will also be notified to their respective European regulators.”
Earlier this January, J. Garcia Carrion sued Goldman Sachs in the U.K. over the sale of foreign-exchange derivatives, which was part of the wider case involving charges on its former finance director entering into unauthorized trades with several banks, such as BNP Paribas SA BNPQY and Deutsche Bank AG DB.
Spokespeople for the FCA, Deutsche Bank and BNP Paribas have all declined to comment.
Goldman Sachs, which is contesting the claims and has declined all allegations, had already filed a lawsuit against J. Garcia Carrion in the U.K. in September 2020, in order to retrieve $6.2 million that the Spanish firm owed it, as per a court filing. The bank noted in a statement, “For years J. Garcia Carrion S.A. profited without complaint from its use of FX derivatives with Goldman Sachs to manage its international currency exposure. The company’s refusal to make the payments due under the transactions in 2020 on the basis that these transactions were unknown to it and were beyond its capacity and authority was unjustifiable and left us with no option but to commence legal proceedings to recover the amount owed.”
Bottom Line
Although Goldman Sachs has resolved quite a few litigation issues, it still faces probes and queries from several federal agencies, and a few foreign governments for its businesses conducted during the pre-crisis period. As a result, the company’s legal expenses are expected to remain elevated, which might partially impede its bottom-line growth in the near term.
Shares of the company have gained 39.5% in the past six months, outperforming the 30.5% rally of the industry.
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Goldman Sachs currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Road Ahead
Trading in the foreign exchange (FX) market garners significant revenues for banks at a very low risk. However, a lack of oversight in the FX market helped banks easily manipulate rates as early as December 2007.
Nonetheless, conducts of banks are now being carefully watched by various anti-trust bodies, resulting in heightening legal hassles for the wrongdoers. While major banks continue to cooperate with pending litigations, their financials are hit by mounting legal expenses arising from settlements and increasing provisions to meet potential claims.
Recently, Brazil’s biggest exporters, such as Vale SA and Suzano SA, appealed in a lawsuit for 19 billion reais ($3.77 billion) from Itau Unibanco Holding SA ITUB and four other major banks on grounds of alleged manipulation of the Brazilian Real (R$).
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