Goldman Sachs has reportedly lost USD5-7 million on a collateralized loan to an individual at a Taiwanese corporate after shares it held to back the transaction plummeted. The investment bank loaned an undisclosed amount to a senior official at Chou Chin Industrial through its private bank and accepted shares as collateral, according to a Goldman official. The shares plummeted from a high of NTD30.90 (USD0.89) on March 5 to NTD3.74 Wednesday after Kuo Pao-fu, chairman of Chou Chin, admitted last month to using company funds to drive up the stock price. Edward Naylor, a spokesman at Goldman in Hong Kong, declined comment.
While USD5-7 million is not going to break the investment bank, the smaller deal sizes in Asia mean it is a major blow. Although Goldman could have avoided the loss through buying puts on the shares it held as collateral, the cost of the option premiums would likely have made the loan uneconomical.
Separately, there was persistent and widespread market scuttlebutt suggesting that an OTC equity position Goldman had executed with the same corporate is deep under water. The Goldman official, however, denied this.
Another derivatives house that was approached by Chou Chin to execute an equity swap which included an option call spread rejected the deal because it feared the stock was being manipulated, according to the head of equity derivatives at the rival firm.
