Tuesday, March 8, 2016

Goldman Sachs's Lloyd Blankfein & Tim Liessner: Which is the greater sin, writing a reference for employment at a competitor ,or knowingly buying sovereigns as junk?

by Ganesh Sahathevan
The WSJ has reported that Tim Leissner quit Goldman Sachs after he was ordered to explain an apparent breach of company policy, ie sending "an unauthorized reference letter on behalf of an individual to another financial firm in 2015."

Compare this Mr Leissner's record breaking, reality defying,1 MDB bond deal, where Goldman put together a scheme where it bought unrated bonds from 1 MDB, got them rated as sovereigns ,which they were, and then sold them at a massive profit. Bloomberg provides a summary:

Unrated Bonds

1MDB’s bonds were unrated when Goldman bought them and got an A- grade, the same as on sovereign debt, from Standard & Poor’s on April 12. The sale matched a Petroliam Nasional Bhd. deal in 2009 as the largest by a Malaysian company in the international market, according to data compiled by Bloomberg. It made Goldman the second-biggest underwriter of Malaysian dollar bonds after Citigroup Inc., with 18.5 percent of the market, the data show.

Part of the $500 million came from Goldman buying the notes at a discount to face value before marking them up to sell to investors, said the person familiar with the deal.

Goldman purchased the bonds for 91 cents on the dollar, according to the person. At that price, the notes yielded about 5.6 percent, or 364 basis points more than Treasuries and 261 basis points more than the rate on Malaysia’s sovereign Islamic dollar debt due July 2021. Quasi-sovereign bonds due in seven to 10 years yielded 2.3 percent on average, according to data compiled by Bank of America Corp.

While it is true that sharp investment bankers like Mr Leissner are very good at picking up mispriced assets, this was clearly a case where all parties involved agreed to pretend that the Rolls Royce was a very ordinary Proton.One would think that this ,more than some "unauthorized reference letter on behalf of an individual to another financial firm " would be of greater concern, but not it seems at Goldman Sachs.It is obvious that Goldman is finding any excuse it can to break any nexus between its partners and CEO and chairman, Lloyd Blankfein.


Goldman Adviser to 1MDB, Tim Leissner, Quit After Alleged Bank-Policy Violations

Leissner was firm’s point man with Malaysian state fund

Tim Leissner, Goldman Sachs’s top banker to 1MDB, and his wife Kimora Lee SimmonsTim Leissner, Goldman Sachs’s top banker to 1MDB, and his wife Kimora Lee Simmons
By JUSTIN BAER and KEN BROWN Updated March 8, 2016 4:09 a.m.                           The Goldman Sachs Group Inc. partner who handled deals for a controversial Malaysian government investment fund was suspended and later quit after bank investigators found he allegedly violated company policies, said a person familiar with the matter.Goldman placed Tim Leissner, the firm’s Southeast Asia chairman, on leave after a review of his email found that he had allegedly sent an unauthorized reference letter on behalf of an individual to another financial firm in 2015, the person said.The letter also included statements that Goldman believes to be inaccurate, the person said. Mr. Leissner was placed on leave in January and he resigned a day later, several people said. His last day was Feb. 23, the people said.The letter allegedly sent by Mr. Leissner wasn’t linked to business that Goldman did for the Malaysian fund, and the firm has found nothing wrong with his dealings with the fund, the people said.

Meanwhile, Mr. Leissner has been subpoenaedby U.S. investigators probing possible wrongdoing at the fund, a person familiar with the matter said. News of the subpoena was first reported by Bloomberg News.
Mr. Leissner was Goldman’s top banker to 1Malaysia Development Bhd., a Malaysian government-investment fund now engulfed in scandal over its alleged connection to transfers of funds into the personal accounts of the Asian country’s prime minister. As authorities​ in five countries probed the fund, Goldman quietly began its own inquiry into Mr. Leissner’s role, the people said.
1MDB didn’t respond to a request for comment.
The email review also came as Goldman resigned from a potentially lucrative mining deal in Indonesia being led by Mr. Leissner because of the involvement of someone in the deal who the bank believed could hurt the firm’s reputation, said one person familiar with the matter. Bank investigators found that Mr. Leissner had offered an internship to a child of the individual, the person said.
The decision to back out of the project irritated Mr. Leissner, who argued that Goldman was scrutinizing his deals more heavily because of his involvement in the 1MDB controversy, people familiar with the matter said. He was also frustrated with Goldman for failing to support his request to move to Los Angeles. He is married to fashion designer Kimora Lee Simmons, who is based there.
The departure of its star banker in the region and the resignation from the mining deal are blows to Goldman’s lucrative business in Southeast Asia, which Mr. Leissner built in over a decade on the ground.
Goldman had been helping a group of investors secure financing in their potential bid for the controlling stake of an Indonesian copper-mining operation when the firm’s executives grew concerned about an adviser to one member of the group. The person’s name appeared on many emails involving the deal, which were seen by Goldman investigators looking at Mr. Leissner’s activities, people familiar with the matter said.
The person involved in the deal also asked Mr. Leissner if Goldman could hire his child as an intern, and Mr. Leissner agreed, a person familiar with the matter said.
The presence of the person, whose identity couldn’t be learned, caused Goldman to pull out of the deal.
The deal, which included financing and hedging, would have generated more than $50 million in revenue for the bank, making it one of the biggest transactions in the region since three big bond offerings by the Malaysian fund in 2012 and 2013, which generated hundreds of millions of dollars in revenue for Goldman.
The bidders hired Credit Suisse Group AG after Goldman withdrew, the people said. The deal is still being negotiated. A spokesman for Newmont Mining Corp., the U.S. company that controls the copper-mining operations, declined to comment.
At a Feb. 29 mining conference in Florida, Newmont Chief Executive Gary Goldberg said that “Newmont and our partner, Sumitomo, are in discussions with certain interested parties” over the potential sale of the mine.
“But to date,” he added, “none have secured fully committed financing or deal terms.” Newmont said the mine, called Batu Hijau, is located on the island of Sumbawa​and is one of the world’s biggest copper mines. It is partially owned by the government.
Mr. Leissner arrived in Southeast Asia when it was considered by many to be a financial backwater and helped the bank forge key relationships in business and government. When Malaysia established 1MDB in 2009 to spur economic development, Mr. Leissner became a key adviser to the fund.
The Wall Street Journal reported this month that global investigators believe $1 billion that originated with 1MDB was transferred to personal accounts of Najib Razak,Malaysia’s prime minister. In October, the Journal reported that U.S. investigators had begun to examine Goldman’s dealings with the fund.
Investigators in two of the countries probing 1MDB, while agreeing most of the money transferred to Mr. Najib’s account ultimately was returned, believe the money originated with 1MDB, according to people familiar with the probes.
Mr. Najib has denied wrongdoing or taking any money for personal gain. The 1MDB fund said in a statement on Feb. 19 that it “has not paid any funds to the personal accounts of the Prime Minister.” Malaysia’s attorney general said the money that went into Mr. Najib’s account was a legal donation from a member of Saudi Arabia’s royal family, and most was returned. The attorney general said there was nothing improper and it was time to stop scrutinizing the deposits, a notion echoed by Mr. Najib.
Mr. Leissner’s departure from Goldman despite his commercial success underlines Wall Street’s heightened concerns over the risks posed by employees operating far from the watchful gaze of compliance officers and lawyers back at their headquarters. Those fears have deepened with each regulatory probe into allegations of money laundering, corruption and improper ties to government employees or their children.
Offering internships to relatives of clients or potential clients had been common business practice for big banks in Asia. But the practice has some under scrutiny for possible violations of U.S. bribery laws and Goldman is among several international banks being investigated for hiring relatives of top Chinese government officials, according to regulatory filings. Goldman officials have declined to comment on the probes.
​Goldman is expected to disclose some details on Mr. Leissner’s departure in his file with the U.S. securities industry’s self-regulating arm, Finra, people familiar with the matter said.
One person familiar with the matter said Mr. Leissner left Goldman quietly in January and by last month had ceased communicating with some of his closest colleagues in Asia.
Goldman’s investment-banking executives didn’t note his resignation with a memorandum to their employees, a step normally taken with partners who leave the firm in good standing, according to a person familiar with the matter.
​After leaving Goldman, Mr. Leissner took on an advisory role with Wildcat Capital Management, the family office of private-equity giant David Bonderman. Mr. Leissner is close with executives in Asia at TPG Capital, the firm founded by Mr. Bonderman. A person familiar with the matter said Mr. Leissner was no longer an adviser to his firm. It is unclear why he ended his relationship with the family office.
—Tom Wright contributed to this article.
Write to Justin Baer at justin.baer@wsj.com and Ken Brown at ken.brown@wsj.com

Sunday, March 6, 2016

Singapore using bank secrecy laws to help 1 MDB perpetrators , but US IRS seems likely to force disclosure .Falcon Bank may be the chink in Singapore's armour.

by Ganesh Sahathevan

An ongoing tax matter that is being prosecuted by the US Internal Revenue Service (IRS) provides some clues about how the Singapore Government may be using banking secrecy laws to ensure that evidence of the 1 MDB theft remains hidden if not obscured. According to Bloomberg:

The Internal Revenue Service is seeking to force UBS Group AG to turn over records on an account in Singapore held by a U.S. citizen, potentially opening a new front against offshore tax evasion beyond Switzerland.

Singapore Secrecy

The U.S. has focused largely on Switzerland in recent years as it has fought offshore tax evasion. More than 80 Swiss banks, including UBS and Credit Suisse Group AG, have agreed to pay a total of $5 billion or so in penalties and fines. The question is where the IRS and the Justice Department will turn next as they sift through a trove of data gathered from Swiss banks and from more than 50,000 U.S. taxpayers who disclosed their accounts to avoid prosecution.The Hsiaw case provides some clues. IRS agents served a summons on UBS in 2013 for records of his account in Singapore from 2001 to 2011. The bank said it couldn’t produce them because Singapore’s bank secrecy laws prevent disclosure without permission from Hsiaw, which he hasn’t provided, according to a court filing.

“Even if Singapore’s bank secrecy laws, as UBS contends, precludes disclosure of the summoned bank records relating or pertaining to Hsiaw’s Singapore account(s), international comity requires that the records be disclosed,” IRS revenue agent James Oertel said in the filing.

Neiman, the former prosecutor, said that “UBS can be held in contempt if they don’t produce the records. I think it’s the IRS’s way to start getting at Singapore.”

The 1 MDB matter is likely to give rise to a number of tax issues in the US given investments in that country by a number of main characters in the 1 MDB debacle.The main character ,Taek Jho Low, is said to be a US ciitzen, while his associates in the matter including PM Najib Razak's stepson have all been reported to have made investments in the hundreds of millions in the US out of the 1 MDB kitty.
Then there is this link which was reported on this blog:

Falcon Bank in breach of US Non-Prosecution Agreement: Swiss AG says quantum of related transactions is USD 4 billion,while Singapore MOF,MAS, remain silent

Meanwhile, the Singapore Government, notorious for its secrecy seems unable to comprehend that open source intelligence is a large and growing fascinating beast.

Thursday, March 3, 2016

Predicting Chinese submarine technology using Russian technology as a proxy in a Dempster Shafer framework-Part 1

by Ganesh Sahathevan
While attempting to predict what the state of the art in submarine technology might be even in 2020,let alone 2030, appears well beyond the capabilities of Australian defense planners, it is submitted an attempt can be made to determine the state of submarine technology in the future by comparing the best available today against its competitors,using information in the public domain.
It is expected that this information will not
always be credible.For this reason the objective here is to create a framework within which the information might  be evaluated while making adjustments for its provenance and accuracy.
It is submitted that the Dempster Shafer model (which this writer has used with some success in the detection of hydrocarbons from satellite imagery) provides a simple, efficient model for creating such a framework.Russian submarine technology is used as the benchmark, based on an assumption that it is  at present the best in the world.
Cost considerations are excluded for the time being ,based on the assumption that savings can be found when one is copying from existing designs.
In the process of working through the proposed exercise one ought to be able to make an estimation of  what Chinese submarine technology might look like in the near future. 
The first step in this ongoing exercise is to gather the information. It is hoped that readers will add to what is here,and what will come, via the comments section or by emailing me directly.

Battle of the Submarines: Akula 

versus Virginia

17 August 2012

Having sailed undetected into US waters; Russian Akula-class submarines are currently enjoying a spell in the limelight. Liam Stoker profiles the Akula-class against the American equivalent, the Virginia-class submarines, to determine which has the upper hand.

News of Russia sailing an Akula-class submarine into the Gulf of Mexico unnoticed may have highlighted a shocking shortfall of territorial security for the US, but it also underpinned the submarine's operational capabilities.
Boasting an improved stealth profile over its predecessors and an impressive top speed and diving range, the Akula-class submarines have become a crucial part of Russia's naval arsenal since their induction in 1984. The closest comparison to the Akula-class within the US Navy's fleet is the Virginia-class submarine, which has been in service with the US Navy since 2004.
With similar capabilities and operational profiles, just how do the Akula-class and Virginia-class submarines stack up against each other?

Weaponry and armament

Virginia-class submarines have one of the most advanced torpedo delivery systems in the US Navy fleet. Image courtesy of the US Navy.

Both attack submarines have distinctly similar levels of armament, with both the US and Russia complying with the START II Strategic Arms Reduction Treaty that capped the number of strategic missile submarines at 14. The Akula-class submarine's armament is split between four 533mm torpedo tubes, capable of carrying 28 torpedoes, and four 650mm torpedo tubes, capable of carrying 12 torpedoes. The Virginia-class submarines are also equipped with four 533mm torpedo tubes, however they are also equipped with 12 vertical launch systems capable of firing BGM-109 Tomahawk cruise missiles.

Development and unit cost

A Virginia-class submarine under construction by Electric Boat. Image courtesy of the US Navy.

The Virginia-class submarines are more costly than their Russian, Akula-class counterparts as well. The estimated cost of an Akula-class submarine is $1.55bn compared to the original $2.4bn per unit price tag of an individual Virginia-class submarine. The original cost of Virginia-class submarines caused controversy as they were intended to be a cheaper alternative to the costly Seawolf submarines, causing the Navy to trigger a cost-reduction programme. The extensive use of commercial off-the-shelf equipment onboard and improvements in shipbuilding technology has reduced this cost to approximately $1.8bn per vessel.

Reactor and propulsion

An artist's conception of a Virginia-class submarine's movement whilst submerged. Image courtesy of the US Navy.

The Akula-class submarines are powered by one 190MW pressurised water nuclear reactor, one OK-7 steam turbine creating 43,000 hp and two OK-2 turbogenerators that produce 2,000 kW of power. Two OK-300 retractable electric propulsors for low-speed and quiet maneuvering have also been installed to increase stealthier operation of the submarine, although the top speed using this method of propulsion is capped at 5kt.
The reactor onboard the Virginia-class submarines has been purposefully designed for the Virginia-class by Knolls Atomic Power Laboratory. The pressurised water reactor offers increased energy density and a new steam generator design which results in improved corrosion resistance and reduced life-cycle costs. The reactor itself is designed to operate for a total of 33 years without refuelling, providing a significant advantage over other submarines that are forced to refuel. Virginia-class submarines rely on pump-jet propulsors for quiet operation, and they also reduce the risk of cavitation, which can cause damage to components.

Maximum depth, speed and endurance

An Akula-class submarine preparing to dive.

Russia's Akula-class submarines trump the Virginia-class submarines on both operating depth and speed, being capable of diving deeper and travelling faster whilst submerged. Akula-class submarines have a maximum operating depth of 600 metres, whereas the listed operational depth of a Virginia-class submarine is noted as greater than 250 metres. The Virginia-class submarines have a maximum speed in excess of 25 knots, whereas Akula-class submarines are capable of top speeds between 28 and 35 knots, although this is reduced significantly to 10 knots when sailing on the water's surface. The Virginia-class submarines are, however, designed to serve for longer periods of time than the Akula-class submarines, which have a maximum endurance of 100 days. The endurance period of a Virginia-class submarine is capped only at its food supplies, allowing for longer periods at sea if required.


The Akula-II class submarines boast an impressive stealth profile, but not as impressive as the Virginia-class.

Having operated within the Gulf of Mexico undetected, the stealth capabilities of the Akula-class submarine have been vaunted in recent weeks. It is already acknowledged as the quietest nuclear attack submarine in service with the Russian navy, with sources claiming the Akula-II class submarines to possess a noise profile comparable to that of the US Los Angeles-class submarines.
The Virginia-class submarines can, however, go one further. Utilising newly-designed anechoic coatings, isolated structures and a new propulsor design, the Virginia-class submarines boast an acoustic signature lower than the Russian Akula-II class submarines, equivalent to that of the Seawolf-class submarines that they were designed to replace.

U.S. Navy Impressed with New Russian Attack Boat

Russian submarine Novosibirsk during July 2013 sea trials.
Russian Project 885 submarine during sea trials.
One of the U.S. Navy’s top submarine officers was so impressed with Russia’s new Project 885 nuclear attack boats that he had a model of K-329 Severodvinsk built for his office.
Rear Adm. Dave Johnson, Naval Sea Systems Command’s (NAVSEA) program executive officer (PEO) submarines said he had the model of Severodvinsk placed outside his office in a common area so that he could look at it every day on his way to his office.
“We’ll be facing tough potential opponents. One only has to look at the Severodvinsk, Russia’s version of a [nuclear guided missile submarine] (SSGN). I am so impressed with this ship that I had Carderock build a model from unclassified data.” Johnson said last week during the Naval Submarine League’s symposium in Falls Church, Va.
“The rest of the world’s undersea capability never stands still.”
The Russian attack boat had been in construction since 1993 and only entered sea trials late in 2011. The boat finally became operational earlier this year. A cash-strapped Russian Federation had to repeatedly delay completion of the submarine in the chaos that followed the collapse of the Soviet Union.
Severodvinsk is the most capable Russian attack submarine ever built and leverages many of the technologies the Soviet Union invested in during the 1970s and 1980s.
Model of Russian submarine Severodvinsk built for NAVSEA. US Naval Institute Photo
Model of Russian submarine Severodvinsk built for NAVSEA. US Naval Institute Photo
The 13,800-ton, 390-foot long, submarine is highly automated vessel with a crew of only 32 officers and 58 enlisted submariners.
It is far quieter than previous Russian submarines and has a maximum “silent” speed of about 20 knots.
The U.S. Naval Institute’s Combat Fleets of the World said some reports suggest the vessel might have a maximum speed of between 35 and 40 knots. However, most Russian reports state a maximum speed of 35 knots. Like most new nuclear submarine designs, Severodvinsk’s reactor is designed to last for the life of the boat.
According the Office of Naval Intelligence (ONI), while the new Russian submarine is quieter than the Improved Los Angeles-class boats, the new vessel is not quite as silent as the Seawolf or Virginia-class. However, the Soviets were always only lagging slightly behind U.S. in quieting technology according to Navy sources. The Russians are already building improved versions of the Yasen design.
Unlike most Soviet submarine designs, the Yasen-class boats do not make use of a double-hull—instead it has hybrid design with a lighter structure over the vessel’s pressure hull according to Russia media reports.
Another unique feature for a Russian vessel is that it incorporates a spherical bow sonar called the Irtysh-Amfora for the first time. As a result, Severodvinsk has its torpedo tubes located at about mid-ship like U.S. submarines. The vessel has eight torpedo tubes, four of which are 650mm tubes while the rest are 533mm tubes. Combat Fleets of the World estimates that the Yasen-class might carry as many as 30 torpedoes.
Infographic of Project 885 submarine via RIA Novosti
Infographic of Project 885 submarine via RIA Novosti
Like most Russian attack submarines, the vessel’s primary weapons are in the form of heavy anti-ship missiles. The boat has 24 missile tubes which can carry the supersonic NPO Mashinostroyeniya P-800 Oniks anti-ship missile which can hit targets roughly 200 nautical miles away. Severodvinsk can also carry Novator RK-55 Granat nuclear-capable 1,600 nautical mile-range subsonic land attack cruise missiles. Additionally, the Yasen-class boats can also launch the 3M14 Kalibr and 3M54 Biryuza land attack and anti-ship missiles, which have a roughly 300-mile range, though its torpedo tubes.
It also carries 91R anti-submarine missiles and has the capability to lay mines along with its normal complement of torpedoes.
Some Russian sources such as Russia Beyond the Headlines suggest that Severodvinsk is equipped with active anti-torpedo defenses and some sort of anti-air capability. The later would not be unprecedented, the Project 941 Akula—known better as the Typhoon-class ballistic missile submarine—was equipped with a 9K38 Igla surface-to-air missile system for ship self-defense.
Russia is expected to build eight Yasen-class boats. Since Severodvinsk took almost two decades to finish, the subsequent boats have many technological refinements to improve on the original Project 885 design. The next two Yasen-class boats are already under construction at the Sevmash shipyards in Severodvinsk, Russia. Kazan was laid down in July of 2009 while Novosibirsk was laid down July of 2013.