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Exclusive: The Goldman risk team examines the 2021 market events to learn from

© Reuters. FILE PHOTO: The view of Goldman Sachs stalls on the floor of the New York Stock Exchange

By Elizabeth Dilts Marshall

NEW YORK (Reuters) – Goldman Sachs Group Inc (NYSE 🙂 executives are checking how well the bank has navigated through some of the major market events this year causing extreme volatility, people familiar with the matter. This told Reuters.

The review will include a market-wide stock sell-off triggered by default Archegos Capital Management on margin calls at banks including Goldman, the sources said.

The downfall of Archegos, a New York hedge fund run by former Tiger Asia manager Bill Hwang, caused shockwaves across Wall Street and attracted regulatory oversight on three continents.

Goldman Sachs is also taking a broader look at how it handles recent market events, with a specific lens of compliance and best practices, the sources said.

That could include what happened during the Reddit-driven trading frenzy on the stock market, including stocks of GameStop Corp (NYSE :), as well as the US Federal Reserve’s decision to end pandemic-related capital bailouts to banks, have caused problems in the fixed income market. Also this year, there was turmoil in the energy market in mid-February after a deep freeze in Texas caused skyrocketing fuel and energy costs.

Goldman Sachs declined to comment.

Although Goldman failed to earn or lose a significant amount due to the insolvency of Archegos and its CEO said the bank’s controls were working well, an increase in volatility across several markets during the year. This has prompted management to take a closer look at its risks and hedging, the source said.

Judgments of this nature are routine at major Wall Street banks, especially when they are faced with the scrutiny of regulators and politicians. The GameStop and Archegos events led financial regulators to say they were taking a closer look at what was causing the volatility.

The Fed considers this a “risk management incident” at companies handling Archegos transactions, Chairman Jerome Powell told CBS “60 Minutes”, https://www.cbsnews.com/news/federal -reserve-jerome-powell-60 -minutes-2021-04-11 aired on Sunday, pledging that regulators won’t let that happen again.

Goldman’s CEO, David Solomon, said last week that the bank’s risk controls for Archegos “work well.”

As part of the review process, the bank’s compliance department reviewed the decision to start business with Archegos in late 2020 and noted that the family office must increase the collateral they have to post in. earlier this year, one of the sources said.

That has helped Goldman avoid losses on positions that its rivals include the Japanese bank Nomura Holdings (NYSE 🙂 Inc and Switzerland Credit Switzerland (SIX 🙂 Team AG is currently facing.

Goldman and several banks avoided doing business with Archegos in its early days as Hwang’s previous company reached a $ 44 million insider trading deal with the US Securities and Exchange Commission. in 2012. They became customer-friendly last year after enough time and it became clear that rivals are doing business with Hwang.

However, Archegos has six top brokers who handle their trades, with varying levels of leverage and margin requirements on a handful of centralized bets. When some of its positions went bankrupt in late March, banks had to seize collateral and sell billions of dollars worth of shares to cover Archegos positions.

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