Goldman rivals: SEC hasn't queried us on CDO deals

The Securities and Exchange Commission hasn't contacted Citigroup Inc. or Morgan Stanley about their sales of collateralized debt obligations or other securitized vehicles in the wake of its charges that The Goldman Sachs Group Inc. engaged in fraud in the sale of such securities, according to executives at the two firms.
MAY 12, 2010
The Securities and Exchange Commission hasn't contacted Citigroup Inc. or Morgan Stanley about their sales of collateralized debt obligations or other securitized vehicles in the wake of its charges that The Goldman Sachs Group Inc. engaged in fraud in the sale of such securities, according to executives at the two firms. Citigroup chief financial officer John Gerspach and Morgan Stanley CFO Ruth Porat made those reassurances last week in the course of discussing respective first-quarter earnings, which far exceeded analysts' estimates. Goldman Sachs, while contesting the SEC's claims of fraud for failing to disclose that a synthetic CDO that it was selling was designed in part by a hedge fund that was shorting the underlying mortgage securities, also announced better-than-expected first-quarter results. In announcing its civil fraud lawsuit against Goldman, the SEC also said that it was looking at other large firms. Although he said that Citigroup hasn't been contacted about CDO sales, Mr. Gerspach said during an earnings call with analysts that the bank is “fully cooperating” with regulators on a “wide range of subprime issues.” He declined to elaborate. Citigroup reported first-quarter earnings of $4.4 billion, or 15 cents a share — its best results since the second quarter of 2007. That compares with a profit of $1.6 billion a year earlier, reflecting an improvement in credit losses across the company and strong results in fixed-income trading. Citigroup chief executive Vikram Pandit said that the quarterly results reflect progress in the bank's long road to recovery but cautioned that in the short term, improvement will be tied closely to continued recovery of the U.S. economy and job growth, an area that he said is still laden with “uncertainty.” Morgan Stanley said that its first-quarter earnings were $1.78 billion, or 99 cents a share, compared with a loss of $177 million, or 57 cents a share in 2009's first quarter. Its global wealth management group, including Smith Barney, posted pretax income of $278 million, compared with $119 million a year earlier. Although the brokerage unit eked out a modest pretax profit margin of 9% in the first quarter, Morgan Stanley chief executive James Gorman said during a conference call that the merger with Smith Barney is on track and should yield a profit margin that tops 20% by the end of 2011. Hilary Johnson contributed to this story. E-mail Jed Horowitz at [email protected].

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