Goldman hired ACA Management to select the pools of subprime mortgages it used to create the CDO. However, the SEC alleges that Goldman didn’t tell the buyers that Paulson’s hedge fund, Paulson & Co, also played a role in selecting the mortgage pools and stood to profit from their decline in value.
Palm denied that charge.
"The portfolio here was not selected by John Paulson," Palm said.
"The portfolio was selected by ACA."
Palm said the bank has had no discussion with the US Justice Department regarding the transaction, suggesting it so far remains a civil complaint, not criminal.
The company told analysts that it lost more than $US100 million ($A108.12 million) on the transaction, up from the $US90 million ($A97.31 million) earlier reported. The higher amount was due in part to fees and other expenses, said David Viniar, Goldman Sachs’ chief financial officer.
Analysts have speculated that Goldman lost money on the deal because it was unable to sell its position before its value declined. Asked about that, Palm acknowledged for the first time that the bank did indeed try to find a buyer.
In its earnings report, Goldman Sachs said it set aside $US5.5 billion ($A5.95 billion) in the first three months of the year to pay employee salaries and bonuses, up 17 per cent from last year. However, the bank said the percentage of revenue set aside for compensation in the quarter fell from 50 per cent to 43 per cent year-over-year.
Goldman’s trading of risky assets once again generated the bulk of its profits. Revenue from trading of bonds, currencies and commodities rose 13 per cent in the quarter to $US7.39 billion ($A7.99 billion).
Investment banking revenue rose to $US1.18 billion ($A1.28 billion), up 44 per cent from last year. Investment banking includes advising on corporate deals and raising capital for stock and bond issues.
Goldman Sachs also said on Tuesday that the executive at the centre of the civil fraud case is voluntarily taking some time off from work.
Fabrice Tourre, who was named in the SEC lawsuit against the firm, is taking a break from his position at the firm’s London offices, Goldman Sachs spokesman Michael Duvally said.
"It is voluntary. He decided to take some time off," Duvally said.
Tourre was a vice president in his late 20s when the alleged fraud was orchestrated in 2007. Tourre, the SEC said, boasted to a friend that he was able to put such deals together as the mortgage market was unravelling in early 2007.
Tourre, 31, has since been promoted to executive director of Goldman Sachs International in London.
Gen Y housing dream dead amid price surge
In a recent forum on the topic, ninemsn readers confirmed Mr Stevens’ fears.
"I’m 23 years old, on 55k a year and don’t ever see myself being able to afford a house by myself," wrote Jimbob of Perth.
But some believe the issue lies with generation Y’s lifestyle choices rather than the housing market.
"As I see it, (and I have 5 kids) the biggest problem is that today’s youth and future custodians of our society, are unwilling to travel and want the biggest possible house first time around," wrote Frustrated of Orchard Hills.
Phil Naylor, Mortgage and Finance Association of Australia CEO, said young Aussies are staying at home for longer in a bid to raise the increasingly large deposits requited to get into the market.
"Given that some lenders are tightening home loan criteria, it’s no surprise that prospective first time buyers will need to make a concerted effort to save for a deposit. In fact our research showed more than 25 percent of prospective first time buyers are looking to live at home in order to save a deposit," he said.