The Wall Street Journal has the details of the $1 billion dollar loan Goldman Sachs made to Banco Espírito Santo which just cost the New Zealand taxpayer $200 million:
Goldman and Espírito Santo eventually settled on the creation of a company, Oak Finance Luxembourg SA, to raise $835 million for Espírito Santo from Goldman and outside investors. Goldman Sachs International co-heads in London, Michael Sherwood and Richard Gnodde, were briefed on the large transaction, according to a person familiar with it.
Oak Finance’s purpose—providing vital funding for a project aimed at increasing Venezuela’s refined-oil output—also checked off a box for Goldman as it tried to expand its relationship with the Venezuelan government, people familiar with the matter said.
Before the money was raised, Espírito Santo’s problems started intensifying. Its parent company was struggling to repay billions of euros to its creditors, including the bank and its clients. Facing potential losses, the bank was having trouble raising money from traditional market sources.
Goldman, meanwhile, was buying Banco Espírito Santo shares. Regulatory filings show Goldman amassed 2.27% of the bank’s shares as of July 15. It looked like a vote of confidence in the Portuguese bank, whose shares rallied 20% on July 23, the day the holdings were disclosed.
So the New Zealand Super Fund loaned money through a Luxembourg shell company created by a US investment bank to a Portuguese bank to fund the Venezuelan state oil company. Awesome.
The Super Fund gets pretty good returns so we don’t want to second-guess them too much, but related third party loans through tax shelter countries to banks that collapse amid accusations of fraud and tax evasion don’t seem like an appropriate way for a state investor to conduct itself, even if the money doesn’t get wiped out.