Other shoes are starting to drop on the Goldman CDO front.
The Abacus program spawned 25 CDOs, and it was logical to expect other investors and insurers of Abacus CDOs to consider litigation now that the SEC has started down that path.
As we pointed out in previous posts, AIG had provided guarantees on some Goldman Abacus trades as part of its multi-sector CDO portfolio. Those transactions did not go over to Maiden Lane III, but instead were unwound at AIG. AIG is now pondering whether to take action against Goldman. From the Financial Times:
AIG, the US government-controlled insurer, is considering pursuing Goldman Sachs over losses incurred on $6bn of insurance deals on mortgage-backed securities similar to the one that led to fraud charges against the US bank….
Under a deal struck by AIG and Goldman last year, the bank agreed to cancel the insurance on some $3bn-worth of CDOs in exchange for keeping collateral worth about $2bn, according to people close to the situation. AIG is believed to have recorded a loss of about $2bn. The CDOs being reviewed by AIG are part of a family of securities known as Abacus. The SEC’s complaint is focusing on one of the Abacus deals that is not among the securities insured by AIG.
Yves here. As we indicated, there is perilous little in the way of precedent as far as structured credit transactions are concerned, where the standards of investor protection are lower than in other types of securities litigation. Thus, even if AIG does not decide to move forward now, it may choose to wait and see how some of the recent lawsuits evolve before it files a suit.