* Protest held at bank's San Francisco offices
* Interest rate swap deal costs cash-strapped city millions
* San Francisco, other cities with similar deals could join
By Sarah McBride
SAN FRANCISCO, July 31 Oakland leaders took
their financial troubles to the doorstep of Goldman Sachs on
Tuesday, urging other cities to join them in fighting a bank
that has become a lightning rod for criticism of the U.S.
Oakland is trying to get out of a Goldman-brokered interest
rate swap that is costing the cash-starved city some $4 million
a year. The swap, entered into 15 years ago as part of a bond
sale to hedge against rising interest rates, has turned sour for
Oakland now that interest rates are near zero.
"I hope that other cities will follow our lead," said
Oakland city council member Desley Brooks, addressing about 30
protesters outside Goldman's San Francisco offices. Oakland has
had to slash city services and lay off police officers even as
it wrestles with a high crime rate and other urban ills.
Oakland is paying 5.68 percent on debt associated with the
swap, even with interest rates at record lows. Getting out of
the contract would cost the city $16 million in termination
fees, it says; it wants Goldman to waive the termination fees.
A $2 million payment on the swap was made Tuesday, according
to a person familiar with the city's finances.
A spokeswoman at Goldman declined to comment on its dealings
Many municipalities and agencies around the country face
problems with interest rate swaps at a time of unprecedented
financial pressure on local governments. Slumping tax revenues
in a sluggish economy combined with soaring pension and
healthcare costs have hit many local governments hard.
The fiscal crisis facing cities and towns is particularly
severe in California: the city of Stockton has filed for
bankruptcy protection, the city of San Bernardino is expected to
do the same, and local governments around the state are slashing
services and trying to raise taxes to balance budgets.
The city of San Francisco will pay around $17 million in
swap fees this year to Goldman connected to debt financing for
its airport, San Francisco Supervisor Jon Avalos said at the
Afterwards, he said he planned to explore over coming weeks
whether San Francisco should attempt to renegotiate its payments
Other cities and agencies in the region that analysts and
unions say must pay swap fees include the city of Menlo Park,
which will pay around $3.1 million this year; the city of
Pittsburg, which will pay around $3.6 million; and the Metro
Transportation Commission, which will pay $48.6 million.
In response to a question about the Oakland interest-rate
swap at Goldman Sachs Group Inc's annual meeting in May,
chairman Lloyd Blankfein said the bank was not in a position to
end the contract.
"That's not how the financial system could work," he said,
noting that most borrowers would prefer to tear up
higher-interest agreements and replace them with today's low
rates. "We would be frankly paring the interests of our
shareholders and the operations of the company. I don't think
it's a fair thing to ask."
But at Tuesday's protest, civic leaders said the bank had
benefited from a government rescue package during the 2008
financial crisis, and now it should give a break to cities like
"They got bailed out. We got sold out," the protesters
chanted. One of them wore a paper top hat bearing the label "Mr.
Blank Check", and as part of a skit ripped funds from libraries,
firemen and city parks.
The City Council has voted to stop doing business with
Goldman if it doesn't let Oakland out of its swap obligation by
the end of September.
The city and Goldman have been discussing some sort of break
on the payments, but the two sides remain far apart, with
Goldman willing to shave a few hundred thousand dollars from the
payments while the city wants to get out of the payments
altogether, a person familiar with the discussions said.
"There's a lot of pandering and accusations about perfectly
reasonable deals that didn't work out," said Stephen Levy of the
Center for the Continuing Study of the California Economy, who
said he wasn't familiar with the Oakland swaps. In terms of
having to pay up, "Why should the cities be different to anyone
else who hedges against corn or oil or uncertainty?" he asked.
The city of Detroit was able to renegotiate its swap
agreements in 2009, but a drop in its credit rating could
require the city to pay more fees on those swaps.
Goldman ranks fifth for the first half of 2012 when it comes
to underwriting municipal bonds, according to Thomson Reuters