Over at DealBook, Steven Davidoff and Peter Henning explain “The Importance Of Fabrice Tourre.”Specifically, they explain why Tourre was the only Goldman executive charged in the Abacus suit.
Partly, they say, he was charged because he was the only one who wrote embarrassing and potentially damning emails. And, partly, Davidoff and Henning say, because Tourre may know all about how, why, and when Goldman starting betting against the housing market (and, with it, the buyers of the Abacus CDO).
If the DealBook timeline is correct, this does provide further evidence that Tourre himself thought that John Paulson was right about the housing market and the Abacus buyers were dupes (which isn’t fraud, but doesn’t look good).
Davidoff and Henning also suggest that the reason the 29-year old Tourre made a nice chunk of change in 2007 ($2 million) was NOT that he arranged the Abacus deal, which lost Goldman $75 million, but that he helped Goldman decide to go short the mortgage market, which made Goldman billions. And. of course, he may have gleaned some of his insight and thesis about the mortgage market from his huge client, John Paulson.
In 2007, Mr. Tourre was reportedly awarded in excess of $2 million in compensation, supposedly in part for his work on Abacus. But this makes little sense because by the end of 2007, when this bulk of this compensation would typically have been awarded and paid as a bonus, the Abacus sale had already started to go bad…
Since Goldman claims it ultimately lost $90 million on its investment in Abacus, it no doubt would have started to recognise such losses by then.
So, why award a bonus to Mr. Tourre and promote him to London where he is now? Even Wall Street is not so blind to results that it would base a bonus on a loss of this magnitude.
This is where Mr. Tourre may prove to have his most damaging effect on Goldman. It was shortly before Abacus was being structured and sold that, during mid-December 2006, Goldman lost money 10 days in a row trading in the mortgage securities market. David A. Viniar, Goldman’s chief financial officer, noticed the decline in pricing on the mortgage-backed securities portfolio, and at a meeting on Dec. 14 he and a group of Goldman executives decided to reduce its exposure to mortgages and go bearish the mortgage securities market. It was at this time that Goldman began to bet against the mortgage market on a net basis. It would be only one month later that the Abacus transaction was initiated.
In making this decision, Goldman likely relied on the information it obtained from its position as an intermediary in buying, selling and structuring these mortgage securities. Part of this information would have come from Mr. Tourre’s mortgage group. And the fact that a big hedge fund like John A. Paulson‘s wanted to short the market starting in 2006 and told Goldman at this time would have likely been particularly of interest to the firm…
So Mr. Tourre’s bonus may have been at least in part a result of his efforts to structure Goldman’s bets against the market.
Business Insider Emails & Alerts
Site highlights each day to your inbox.