Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Goldman's Risky Corporate Loan Book


The Federal Reserve's latest stress tests provide a rare look inside the balance sheets of some of the biggest banks. And a few oddities are popping up.

One that nearly leaps off the page is the extreme risk in the corporate loan book of Goldman Sachs.

The Fed said the median loss from commercial and industrial loans across the 18 banks tested would be 6.5 percent under the severely adverse scenario. But Goldman's loss would be a stunning 49.6 percent.

Goldman doesn't have a giant C&I loan book. According to the Fed, it has just $1.4 billion of these loans, whereas JP Morgan has $11.1 billion and American Express has $2.6 billion. But Morgan Stanley has a similar sized book, at $1.2 billion, and the Fed estimates its loss would be just 7.8 percent.

No other bank even comes close to Goldman on this measure. It literally breaks the chart in the Fed's stress test.

Goldman did not respond to my request for information about why its portfolio of this class of loans is so much riskier than its peers.

I suspect that these are mostly syndicated leveraged loans. Goldman is active in the syndicated loan market, although it typically doesn't hold much of the loans it brings to market. These are probably the remnants of leveraged loans used in things like private equity deals, pieces that Goldman never sold off. That would go a long way to explaining why they are so much riskier than the loans held by other banks.

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