Goldman Sachs's Emergency Loans From Fed Surpassed $24 Billion Amid Crisis

Goldman Sachs Group Inc., which rebounded from the financial crisis to post record profit last year, was a regular borrower from two emergency Federal Reserve programs in 2008 and early 2009, new data show.

The firm borrowed from the Fed’s Term Securities Lending Facility most weeks from March 2008 through April 2009, data released by the Fed today show. Two units of the New York-based firm borrowed as much as $24.2 billion from the Fed’s Primary Dealer Credit Facility in the weeks after Lehman Brothers Holdings Inc.’s bankruptcy in September 2008, the data show.

Chief Executive Officer Lloyd Blankfein, 56, was quoted by Vanity Fair last year as saying the company might have survived the credit crisis without government help. The firm’s president,Gary Cohn, was more definitive, according to the magazine: “I think we would not have failed,” he was quoted as saying. “We had cash.”

Treasury Secretary Timothy Geithner, who was president of the Federal Reserve Bank of New York during 2008 and 2009, has disputed such an assessment.

“None of them would have survived,” without government help, Geithner said in an interview last December with Bloomberg Television’s “Political Capital with Al Hunt.”

Bear Stearns

Goldman Sachs took a $100 million overnight loan from the Primary Dealer Credit Facility on March 18, 2008, the day after the facility was created in the wake of JPMorgan Chase & Co.’s rescue of Bear Stearns Cos. At the time, spokesman Michael DuVally said his firm was “testing” the facility and would use it “if doing so makes sense from an economic and funding diversification point of view.”

The firm didn’t borrow any more from the PDCF until Sept. 15, the day that Lehman Brothers filed the largest bankruptcy in U.S. history. On that day Goldman Sachs borrowed $2.5 billion at a 2.25 percent interest rate and furnished the Fed with $2.68 billion of collateral. The firm doubled the amount it borrowed to $5 billion on Sept. 19 and doubled it again to $10 billion on Sept. 22, when Goldman Sachs’s London subsidiary also took its first PDCF loan of $250 million.

Peak Borrowing

At the peak, Goldman Sachs borrowed $24.2 billion on Oct. 15, which included $18 billion for the firm’s U.S. broker-dealer and $6.2 billion for the firm’s London division, the data show. The peak borrowing came two days after the U.S. Treasury Department assembled executives from nine of the country’s biggest financial firms and told them they’d be provided with capital injections from the government, with Goldman Sachs receiving $10 billion from the Troubled Asset Relief Program.

In its quarterly filings with the U.S. Securities and Exchange Commission, Goldman Sachs didn’t disclose that it borrowed from the PDCF.

The firm also borrowed from the Term Securities Lending Facility, which offered longer-term funding than the PDCF’s overnight loans. On March 28, 2008, Goldman Sachs borrowed $7 billion from the Fed’s TSLF in exchange for $8.42 billion of collateral that included $3.5 billion in agency-backed mortgage debt and $4.9 billion of non-agency backed mortgage debt. Before the loan was scheduled to mature on April 25, Goldman Sachs borrowed an additional $4 billion on April 11 and $223 million on April 18.

Largest Loans

The two largest TSLF loans to Goldman Sachs were $7.5 billion on Dec. 4, 2008, and the same amount on Dec. 31, 2008, the data show. The firm also didn’t disclose its TSLF borrowing in its quarterly SEC filings, although it provided data on its borrowing to the U.S. Treasury.

When the loans from the PDCF and the TLSF are combined, the firm’s total borrowing from the Fed peaked at $35.39 billion on Oct. 21 and Oct. 22, 2008, the data show.

DuVally, the spokesman in New York, declined to discuss the borrowing and the firm’s decision not to disclose it, beyond a statement responding to today’s release of Fed data.

“In late 2008, many of the U.S. funding markets were clearly broken,” he said. “The Federal Reserve took essential steps to fix these markets and its actions were very successful.”

Goldman Sachs didn’t borrow as much as some of its rivals, while it borrowed more than others. Morgan Stanley, which was the second-biggest U.S. securities firm after Goldman Sachs before the two firms converted into banks in September 2008, borrowed as much as $100.5 billion at its peak on Sept. 29, 2008, the data show. That includes $61.3 billion of loans from the PDCF and $39.2 billion from the TSLF, the data show.

JPMorgan Chase

The borrowing occurred “during a time of immense financial turmoil throughout the banking sector and the broader market,” Morgan Stanley said in a statement.

JPMorgan Chase & Co., the second-biggest U.S. bank by assets, borrowed $3 billion from the Primary Dealer Credit Facility on Sept. 15 and as much as $5 billion from the TSLF on Oct. 17, the data show.

“We did not need the liquidity or funding” on the day of Lehman’s bankruptcy, said Jennifer Zuccarelli, a JPMorgan spokeswoman. As Lehman’s collapse triggered broader financial turmoil, “we had been encouraged by our regulators to use their facilities when it was helpful to the marketplace and to remove any stigma,” she said.

Even as JPMorgan borrowed less from those two programs than Goldman Sachs or Morgan Stanley, it was borrowing from a different Fed program that neither Goldman Sachs nor Morgan Stanley tapped. JPMorgan Chase and its Chase Bank USA subsidiary borrowed from the Term Asset Facility, which was established in December 2007 to provide term loans to depositary institutions.

JPMorgan has previously said that it borrowed from the Fed’s discount window without disclosing how much. Data on discount window borrowing isn’t public.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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