NEW YORK: Goldman Sachs Group Inc., one of the biggest recipients of funds from the US bailout of American International Group Inc., was seen by the public as favored by regulators, according to an internal Federal Reserve Bank of New York e-mail.

The public perception was a reason to reject a December 2008 media request for the names of securities purchased from banks during AIG’s rescue, according to the e-mail released yesterday. If the names of the assets were released, the banks, including Goldman Sachs, would be identified as beneficiaries, New York Fed employee Danielle Vicente wrote in the Dec. 4, 2008, e-mail to Fed counsel James Hennessy.

The New York Fed has said that releasing the names of banks that were paid to tear up $62.1 billion in AIG guarantees could hurt the insurer and its counterparties. The internal e-mail, obtained this month by a House oversight committee, indicates Vicente was also concerned that the AIG rescue would be viewed unfavorably by taxpayers and lawmakers if it was known that Goldman Sachs and non-US banks received funds.

“A major US counterparty was Goldman, which has already been seen as favored by the Fed/Treasury in the public’s eye,” Vicente wrote. Regarding the non-US banks, “it would be hard to sell the public on US funds to buy foreign entities out of AIG risk.”

AIG disclosed counterparty names last March after lawmakers criticized Fed Vice Chairman Donald Kohn, who testified in a hearing that month that releasing bank names would harm the New York-based insurer’s ability to do business. Goldman Sachs, the most profitable securities firm in Wall Street history, and Societe General SA, the second-largest French bank, were the biggest beneficiaries of payments to retire credit-default swaps.

‘You Just Can’t Explain’

Another reason that Vicente said the New York Fed wanted details of the payments withheld: The banks got 100 cents on the dollar for real-estate linked assets, called collateralized debt obligations, that had declined in value.

“Counterparties received par -- which is politically sensitive -- but necessary given the economics of the deals,” Vicente wrote. “That’s something you just can’t explain in a press release because it involves understanding of why the deals don’t have isolated risks (for example, I believe one counterparty had shorted AIG risk in order to balance their AIG exposure on the CDS deals, so tearing up the trades left them exposed with no hedge, etc.)”

Deborah Kilroe, a spokeswoman for the New York Fed, and Lucas van Praag of Goldman Sachs declined to comment yesterday. Vicente didn’t return a call for comment.

Request for Names

The request for the names was initiated by Forbes magazine, according to a copy of the e-mails. Andrew Williams, then a New York Fed spokesman, asked colleagues why the agency couldn’t provide the data, writing that it was “useful if I can understand why, even if I can’t use it publicly.”

Lawmakers questioned Treasury Secretary Timothy F. Geithner yesterday during a House Oversight and Government Reform Committee hearing about his decision to fully reimburse counterparties when he ran the New York Fed. Also testifying was Henry Paulson, Geithner’s predecessor as head of Treasury and former chief executive officer of Goldman Sachs.

The hearing was called after e-mails released this month by Representative Darrell Issa, the ranking member of the House oversight panel, indicated the New York Fed asked AIG to limit what the public knew about the bank payments. The New York Fed handed 250,000 pages of documents to committee investigators.

Friedman

Also yesterday, Goldman Sachs board member Stephen Friedman was asked about his tenure as New York Fed chairman and his purchase of Goldman shares while in that role. Friedman, who spent a career at Goldman Sachs, said the bank didn’t gain any unfair advantage because of his involvement. Friedman, 72, was asked whether Goldman Sachs encourages employees to work for government agencies.

“What there has been over the years is a certain tradition that you work here, you try to do well for yourself and your family and then you give back and you do public service,” Friedman said. “For many years this was regarded as a very constructive and positive thing. Recently it’s gone the other way and people are thinking, ‘Is there some ulterior motive?’”

AIG’s chief executive officer when Vicente wrote the e-mail was Edward Liddy, who was installed by the government after the bailout and is a former board member at Goldman Sachs. Liddy agreed to work for a salary of $1 a year.