Apple 2.0

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Goldman Sachs and the Apple structured bond deal

January 29, 2013: 7:15 AM ET

Wall Street's great vampire squid strikes again

Screen Shot 2013-01-29 at 6.58.59 AMFORTUNE -- Last Tuesday, the day before Apple (AAPL) released its holiday quarter earnings and two days before the company lost $60 billion in market value, Goldman Sachs (GS) sold $30 million worth of so-called structured bonds tied to the performance of Apple's stock, SEC filings show.

At the time of the sale, Bill Shope, Goldman's Apple equities specialist, was predicting that the company's shares would climb to $760 within 12 months. The day after the earnings report, he lowered his Apple price target to $600. The bonds Goldman sold, a complicated form of bank debt, convert to Apple stock if the company's shares fall below a pre-set strike price.

Goldman Sachs denies it made money betting against its clients in this case. In 2010 the company Matt Taibbi memorably described Goldman Sachs as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money," paid a $550 million fine -- the largest ever by a Wall Street firm -- to settle SEC charges that it misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.

According to Bloomberg, investors bought $1.75 billion of structured notes tied to Apple last year, making it the second-most popular reference measure after the S&P 500 index. According to a report on these types of notes in the Wall Street Journal last week, the vast majority of the 450 Apple structured bonds issued in 2012 are now underwater.

CORRECTION: An earlier version of this story incorrectly described the bond deal as a sale to retail clients -- it was an institutional deal. According to a Goldman Sachs spokesperson, it was a "reverse inquiry" and the company denies that it "made money" betting against this client. The company also points out that Bill Shope is an equities analyst in the research department, which it describes as independent and "totally walled off" from the securities division where the notes were issued.

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Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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