Filippa, 45, said he obtained the agreement via Goldman’s private-wealth management unit while working as a managing director in the bank’s London office. He entered into a 10-year interest rate derivative that required him to pay an upfront premium of about 4 percent of the value of the mortgage, while the bank is required to pay him every quarter that a benchmark of interbank borrowing costs is above a pre-defined level.
Filippa, who left the bank in 2016, declined to comment on how much he paid for his home. He said Goldman expected its staff to conduct their personal investments with the bank for compliance reasons, and that the firm allowed him to tailor the contract to his specific requirements. Goldman declined to comment for this article, as did JPMorgan.
“I bought insurance against the leverage I took on against my house,” said Filippa. “Only time will tell how much benefit I will get from the protection I bought, but it allows me to sleep well, whatever happens to interest rates.”
It’s never been easy to get a personal ISDA agreement, but before the financial crisis banks gave them out more freely, according to people familiar with the matter. Rules created to prevent another crisis have increased capital costs for lenders trading derivatives that are not processed through a clearinghouse; what’s more, lawsuits that focused on mis-selling of derivatives prodded banks to be more selective with whom they are willing to trade.
Billionaire real-estate investor Jeff Greene, who bet against U.S. subprime-mortgage bonds, says he was told in 2006 by Merrill Lynch that he was the firm’s first client to ever get a personal ISDA to trade credit-default swaps wagering on a collapse in that market.
Spurning an offer to invest with his friend, hedge-fund honcho John Paulson, Greene put on his own trades and said he made a profit of about $800 million on a portfolio of credit-default swaps protecting against declines in about $1 billion of mortgage bonds.
Management subsequently ruled against a broader rollout because it was almost impossible to track an individual’s total exposure to privately negotiated derivatives trades, according to Cliff Lanier, a former director at the firm who ran a team tasked with marketing fixed-income structured products to high-net-worth individuals.
In some cases, bank employees have been able to obtain ISDAs to trade with their employers, an arrangement typically facilitated by the bank’s wealth-management unit. That was the case at Deutsche Bank, where senior executives, including Raj Bhattacharyya and Boaz Weinstein, had ISDAs with the bank while employed by the firm.
Bhattacharyya, who remains with the German lender and heads its emerging-markets debt and foreign-exchange franchise in the Americas, declined to comment, as did Weinstein, who left in 2009 to set up his own hedge fund, Saba Capital Management.
“Deutsche Bank has strict personal-account dealing controls and procedures in place to prevent conflicts of interest,” said Olayinka Fadahunsi, a spokesman for the bank in New York.