Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Exclusive: Goldman risk group examines 2021 market events for lessons - sources

Stock MarketsApr 12, 2021 03:10PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A view of the Goldman Sachs stall on the floor of the New York Stock Exchange

By Elizabeth Dilts Marshall

NEW YORK (Reuters) - Goldman Sachs Group Inc (NYSE:GS) executives are examining how well the bank navigated several major market events this year that caused extreme volatility, people familiar with the matter told Reuters.

The review will include a market-wide fire sale of stocks triggered by Archegos Capital Management's default on margin calls at banks including Goldman, the sources said.

The meltdown of Archegos, a New York investment fund run by former Tiger Asia manager Bill Hwang, has sent shock waves across Wall Street and drawn regulatory scrutiny in three continents.

Goldman Sachs is also looking more broadly at how it handled recent market events, with a particular lens on compliance and best practices, the sources said.

That could include what happened during the Reddit-fueled trading frenzy in equity markets, including shares of GameStop Corp (NYSE:GME), as well as the U.S. Federal Reserve's decision to end pandemic-related capital relief for banks, which caused issues in fixed-income markets. Also this year, there was chaos in energy markets in mid-February after a deep freeze in Texas sent the cost of fuel and power sky-high.

Goldman Sachs declined to comment.

Although Goldman did not earn or lose a significant amount of money on Archegos' default and its CEO has said the bank's controls worked well, the surge of volatility across several markets this year prompted management to take a closer look at its risks and hedges, the sources said.

Reviews of this nature are routine at large Wall Street banks, especially when they face scrutiny from regulators and politicians. The GameStop and Archegos events have prompted financial regulators to say they are taking a closer look at what caused the volatility.

The Fed considers it a "risk-management breakdown" at firms that handled Archegos' trades, Chairman Jerome Powell told CBS's "60 Minutes", https://www.cbsnews.com/news/federal-reserve-jerome-powell-60-minutes-2021-04-11 which aired on Sunday, pledging that the regulator will not let it happen again.

Goldman's chief executive, David Solomon, said last week that the bank's risk controls on Archegos "worked well."

As part of its review, the bank's compliance department examined its decision to begin doing business with Archegos in late 2020 and noted it required the family office to increase the collateral it was required to post early this year, one of the sources said.

That helped Goldman avoid losses on positions that rivals including Japanese bank Nomura Holdings (NYSE:NMR) Inc and Switzerland's Credit Suisse (SIX:CSGN) Group AG are now facing.

Goldman and several banks avoided doing business with Archegos in its early days because Hwang's prior firm reached a $44 million insider trading settlement with the U.S. Securities and Exchange Commission in 2012. They warmed up to the client last year after enough time had passed and it was clear that rivals were doing business with Hwang again.

However, Archegos had six prime brokers handling its trades, with different levels of leverage and margin requirements on a handful of concentrated bets. When some of its positions went belly-up in late March, the banks had to seize collateral and sold billions of dollars' worth of stock to cover Archegos' positions.

Exclusive: Goldman risk group examines 2021 market events for lessons - sources
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email