August 9, 2012 / 1:35 PM / 7 years ago

Goldman says SEC drops probe into its role in MBS deal

(Reuters) - The U.S. Securities and Exchange Commission has dropped an investigation into Goldman Sachs Group Inc’s role in selling $1.3 billion worth of subprime mortgage securities, the investment bank said in a regulatory filing on Thursday.

A Goldman Sachs sign is seen on the floor of the New York Stock Exchange, April 16, 2012. REUTERS/Brendan McDermid

In February, Goldman received a so-called Wells notice from SEC staff related to disclosures in the deal’s offering documents. Such notices typically indicate the agency plans to take some kind of enforcement action, and gives firms a chance to respond.

On Monday, the SEC notified Goldman that the investigation had been closed and that it did not intend to recommend any enforcement action against the bank related to the offering, Goldman said in its quarterly 10-Q filing with the SEC.

The investment bank also lifted its estimate of “reasonably possible” legal losses to $3.4 billion from a previous estimate of $2.7 billion three months earlier. The estimate does not include potential losses from legal matters that are at an early stage or that are too difficult to predict.

Goldman said it lost money on six trading days in the second quarter, or 9 percent of the time, down from 15 trading days in the year-ago period. The bank got at least $100 million worth of trading revenue on four of the 64 trading days in the quarter, or 6 percent of the time.

Earlier this week, Goldman’s chief Wall Street rival Morgan Stanley, said it lost money on 15 trading days last quarter and made at least $100 million on three trading days.

Goldman also said it slashed market exposure to Italy by building up a short position using credit derivatives.

On June 30, Goldman had flipped to a $977 million short position in Italian stocks, bonds and credit derivative holdings. That compares with $2.4 billion worth of long exposure at the end of the previous quarter.

The change resulted from the investment bank building up a $1.4 billion short position in credit derivatives, almost double what it held at the end of the previous quarter.

Goldman also detailed $1.1 billion in “credit” exposure to Italy, reflecting the risk that its Italian borrowers and counterparties might default on obligations. That was down 7 percent from the previous quarter.

Goldman’s overall market exposure to what are known as “peripheral” euro zone countries — including Greece, Ireland, Italy, Portugal and Spain — flipped to a short position of $977 million, compared with $2.68 billion of positive exposure at the end of the first quarter. Its overall credit exposure to those countries rose 33 percent to $3.4 billion from $2.5 billion.

Reporting By Lauren Tara LaCapra; editing by John Wallace and Maureen Bavdek

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