The Goldman Sachs Group, Inc.’s GS European unit — Goldman Sachs Bank Europe SE — was recently fined an administrative penalty of €6.63 million by the European Central Bank (“ECB”) for credit risk reporting errors and miscalculating its risk weighted assets (RWAs).
Particularly, ECB said that the bank misclassified corporate exposures and applied a lower risk weight. With this, GS underreported the credit risks associated with its RWAs for eight straight quarters from 2019 to 2021.
Particularly, RWAs are measures of the riskiness of a bank and are used to calculate a bank’s capital requirements. Hence, by underestimating risk-weighted assets, GS reported higher-than-actual capital ratios.
"The bank reported wrongly calculated figures to the ECB, therefore preventing the ECB from having a comprehensive view of its risk profile," it added in a statement.
The lapse and the bank’s inability of detecting this mistake also highlight deficiencies in its internal controls.
Goldman said in a statement that it had "closely cooperated with the ECB" and "taken all necessary steps" to address the issue.
Last week, Goldman reached a settlement deal by agreeing to pay $215 million in a class-action lawsuit alleging that the firm underpaid women.
Goldman continues to face many investigations and lawsuits from investors and regulators. Though the company resolved certain litigations related to the sale of risky mortgage-backed securities, many of the cases are yet to be resolved. All these are expected to lead to increased expenses and litigation provisions in the near term.
Over the past six months, shares of GS have declined 15.4% compared with the industry’s fall of 17%.
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Currently, GS carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Financial Misconduct by Other Firms
Recently, the U.S. Commodity Futures Trading Commission (“CFTC”) charged HSBC Holdings plc HSBC for manipulative and deceptive trading, and record-keeping failures. Units of HSBC agreed to pay $75 million to settle the charges.
Per the CFTC’s claim, between March 2012 and April 2016, HSBC traders engaged in manipulative and deceptive trading in interest rate swaps and other financial products.
HSBC has already been penalized by the Securities and Exchange Commission (“SEC”) for related charges.
Last week, the SEC slapped units of The Bank of Nova Scotia BNS and HSBC with civil penalties for widespread record-keeping violations through employees’ use of personal devices and apps for work communications.
BNS and HSBC agreed that they had failed to meet record-keeping requirements for dealers registered with the U.S. market regulators.
Hence, HSBC agreed to pay $15 million to settle the charges, whereas BNS agreed to pay $22.5 million.
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