London firm at centre of Greece-Goldman deal

A small London financial firm operating near Liverpool Street station has emerged as a key player in Greece's problematic foreign-borrowing deals involving Goldman Sachs.

According to the Wall Street Journal, a company called Titlos plc was created in early 2009 just three weeks before the National Bank of Greece SA and Goldman arranged for the company to sell €5.1 billion in Greek government notes.

Titlos doesn’t appear to have ever been a real company and the notes it sold weren't ever destined for the open market; the deal was simply a way for Greece to quietly borrow huge sums of money from the European Central Bank at preferential rates that were then used for higher-yielding transactions.

Titlos is housed in the same London office as Wilmington Trust SP Services and both its directors work for the firm. Financial analysts say the deal is quite typical of the often-conflicted relationships between banks and governments that are now looking increasingly questionable.

In this case, the formation of Titlos dates back to the now-notorious 2001 Goldman-organised deal in which Goldman loaned Greece €2.4 billion using a structure of currency-swaps that allowed it to report lower levels of debt than it had. In total, there were 10 similar transactions between 1998 and 2000.

Such deals are making investors nervous. After all, these types of secret credit-default swaps were what got companies like AIG into mortal trouble and there is concern that economies across Europe have also used similarly inventive procedures to obscure the true size of their debts and deficits.

And the picture may be much darker than it seems: EU governments are not obliged to reveal the precise nature of the agreements they enter into, only to keep their annual budget deficits below three per cent of GDP.

Now, there are loud political calls for authorities to take a closer look to see if banks helped governments distort their books. At the insistence of Eurostat, the European monitoring agency, any loop-holes that allowed currency swaps should have been closed.

Still, not much is known about countries' continued exposure to pre-existing deals. Gikas Hardevoulis, a former advisor to the then-prime minister of Greece, believes the Greece-Goldman trades should never have been made: "It was done to dress up the debt figures by some smart idiot in the finance ministry," he says. ·