Goldman Sachs Faces Backlash on Venezuela Bond Purchase
Investment banking giant Goldman Sachs has come under extreme pressure in recent days for its decision to buy a large amount of Venezuelan sovereign debt. The company, which manages assets of various kinds around the world, purchased £2.2 billion ($2.8 billion) worth of bonds issued by the Venezuelan government of President Nicholas Maduro, who assumed power after the death of socialist leader Hugo Chavez.
Goldman Sachs has now been accused of indirectly funding the embattled Venezuelan government. For the past two years, the country’s economy has been steadily declining as the price of oil, its dominant export, has fallen drastically. The result of existing debt obligations combined with this sudden decrease in revenues has been economically disastrous for the socialist nation, which is currently struggling to provide food for its own citizens. Efforts on the part of the Maduro government ranging from massive minimum wage hikes to vast new printing of money have also led to hyperinflation. The country’s inflation rate in 2016 alone was nearly 800 percent.
Despite the problems facing the Maduro government, Goldman Sachs believed that the bond purchase was a good investment to add to its large bond portfolio. In part, this was due to the massive discount the bank was able to negotiate, allowing them to purchase the full £2.2 billion worth of bonds for a mere £670.8 million ($865 million). Should the bonds still be redeemable for their face value when they come due, Goldman Sachs would make a substantial profit on the purchase. Maduro’s opposition in Venezuela, however, has made it clear that it will not honor the bonds if Mr. Maduro loses power prior to their maturation date.
The purchase was conducted on the secondary bond market, rather than directly through the Venezuelan government, according to a statement on the matter issued by Goldman Sachs. Although the purchase did not pay new funds directly into Venezuela or its government, the bank has faced strong accusations of extending a “lifeline” to the country and thus prolonging Mr. Maduro’s rule. Included in the list of those who have criticized Goldman for the bond purchase are members of US President Donald Trump’s administration.
The general opposition to the purchase was made clear in the share prices of Goldman Sachs. On May 31st, the day the purchase was announced, shares opened at £169.24 ($218.24). By 10:30 in the morning, shares had dropped to trade at £163.38 ($210.68). Goldman Sachs closed the week trading at £165.48 ($213.39), down significantly from the beginning of the week. It is not yet clear whether shares will rebound in the coming week, or whether the continued controversy over the bond purchase decision will leave the investment banking giant’s shares in a depressed state over the coming 5-day period.