Goldman Sachs CDO Labeled ‘Shi**y Deal’ by Montag in E-Mail

(Bloomberg) -- Thomas Montag, the former head of sales and trading in the Americas at Goldman Sachs Group Inc., called a set of mortgage-linked investments sold by his firm “one shi**y deal,” according to an excerpt from internal e-mails released by Senate lawmakers.

The transaction was Timberwolf Ltd., a $1 billion collateralized debt obligation holding pieces of other CDOs, according to a statement from the Permanent Subcommittee on Investigations. The CDO also included optimistic side-bets on the performance of CDOs, derivatives in which the firm took the opposite pessimistic side in “many” cases, the panel said.

“Boy that timberwo[l]f was one shi**y deal,” Montag, who is now Bank of America Corp.’s president of global banking and markets, said in a June 22, 2007, e-mail to Daniel Sparks, who ran Goldman Sachs’s mortgage business at the time, according to the statement yesterday. Within five months of Timberwolf’s debut, the CDO had lost 80 percent of its value, and it was liquidated in 2008, according to the panel.

The CDO was among securities that Goldman Sachs sold to clients after deciding the New York-based firm needed to reduce its mortgage holdings,Carl Levin, a Michigan Democrat who leads the panel, said in the statement. Chief Executive Officer Lloyd Blankfein and six other current and former executives will testify today in front of the panel about practices in mortgage securities markets before they collapsed.

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The committee, which began to release documents before today’s hearing, didn’t release the full text of the e-mails. A person briefed on the Timberwolf e-mail confirmed that Montag was the author.

Montag, now 53, didn’t respond to a request for comment and Bank of America spokeswoman Jessica Oppenheim had no immediate comment. Blankfein, 55, will tell the panel his firm didn’t wager against clients, according to a prepared text of his remarks.

“We respectfully disagree with Chairman Levin’s statement,” according to an e-mail from Goldman Sachs spokesman Lucas van Praag. “We did not have a big bet against the housing market, as our performance in residential mortgages demonstrates, and we believe we at all times worked appropriately with our clients. We did try to manage our risk, as our shareholders and regulators would expect.”

The Timberwolf CDO was issued in March 2007, following a Goldman Sachs quarter that ended February 2007 in which one department of the bank shifted from $6 billion of bets that mortgage bonds would perform to $10 billion they would default, according to Bloomberg data and information the panel released.