Between debating the location of a proposed dog park and discussing taxi permit fees one night last month, the city council in Oakland, California, turned to severing ties with Goldman Sachs.
It culminated months of efforts by the city to exit a 1998 interest-rate swap without paying a $14.8m termination fee. Goldman, which underwrote $83m of Oakland debt last year, has denied the request.
The cash-strapped city addressed about $318m of budget gaps in the last six years. It is moving toward the rare step of cutting off business with the bank that sold it a bet on interest rates that wound up backfiring. Issuers including California’s water resources department and Reading, Pennsylvania, have paid at least $4bn to banks to end such contracts after the deals failed to protect them from changes in interest rates.
'I’m sure Goldman Sachs does not relish the possibility of losing the ability to do investment banking business with the city of Oakland', said Robert Fuller, principal at Capital Markets Management LLC, a Hopewell, New Jersey-based swaps adviser to municipalities.
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