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After buying a wave of Mortgage-Backed Securities (MBS) from funds that had bought them with borrowed money and needed to sell quickly, Bloomberg reports that Goldman Sachs Group Inc. charged a fee for helping funds and investments trusts exit repurchase agreements and it also stood to gain if the bonds rallied in the period it held them.
“Making markets—buying from or selling to our clients—is the core activity of our Global Markets division, and we do it regardless of markets conditions,” Goldman Sachs said in a statement, adding that “we had no advance knowledge of any of the facilities the Fed announced and assumed risk when we bought securities from clients during this period.”
Not long after, the Fed intervened to calm market panic and said it would buy unlimited amounts of Treasury bonds and mortgage securities. That allowed Goldman to sell some notes to the Fed, according to people familiar with the matter, while even bonds that were ineligible for central bank purchases rallied after the Fed stepped in.
Goldman executed a few large trades with key clients and also approached several other structured credit hedge funds to see if they wanted to trade. The firm saw an increase of as much as 75% compared to regular volumes for similar trades as of early April, one of the people said.
According to Bloomberg, Goldman was confident it could find buyers for any bonds it took on and wouldn’t need to warehouse them for a long period.
The central bank announced last month it’s buying unlimited amounts of mortgage securities to keep borrowing costs low, although it excluded the private U.S. mortgages that are packaged into non-agency mortgage-backed securities. It also set up programs to ensure more credit flows to businesses and expanded its Money Market Mutual Fund Liquidity Facility. After the announcement, Goldman also bought securities from money market funds to sell to the Fed.
