Whoops: Goldman Sachs Makes a Million-Dollar Mistake

Dirty Money

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It looks like someone at Goldman Sachs (NYSE:GS) needed to trade in their morning coffee for a red eye. Sources tell Bloomberg that the bank accidentally used the wrong Treasury note as a benchmark for the offering of $1 billion worth of five-year 2.875-percent notes from Ford Motor‘s (NYSE:F) finance unit, adding about $1.5 million in extra interest to the cost of the offering.

Goldman charged Ford a lower fee on the sale in order to compensate for the mistake — the car maker reportedly paid just 0.25 to underwrite the bonds, as opposed to 0.35 percent. JPMorgan Chase (NYSE:JPM) was also an underwrite on the Ford bond offering.

The mistake, although relatively minor, is actually a fairly rare occurrence on Wall Street. It is likely that the slip up was a human error that simply failed to get noticed — whereas other issues that have landed Goldman in some hot water recently have been technical glitches. For example, A clerical error — the result of a technical glitch — in the $11.6 trillion market for U.S. government debt prevented the multibillion-dollar order for Treasury bills made by Goldman Sachs at an early September auction from being processed. That mistake left the investment bank with a loss and the U.S debt market with severely altered prices.

In September, The Financial Times learned through sources familiar with the incident that a malfunction in the computer system at the New York Federal Reserve, which conducts debt auctions for the U.S. Department of the Treasury several times a month, caused Goldman’s order for three-month Treasury bills to go unrecorded. In an attempt to remedy the problem, an official recorded the orders manually, but the investment bank inadvertently received more six-month Treasury bills than it had ordered as a result, and none of the three-month bills, the sources told the publication.

In fact, the allotment of six-month bills the Treasury gave Goldman was over the 35 percent limit that a bidder can acquire in an action. That rule was waived, and the Treasury Department allowed the results of the auction to stand. Those familiar with the matter told the Financial Times that the Treasury will make no additional fixes.

After the auction, the Treasury’s Bureau of the Public Debt did admit, in a statement posted to the department’s website, that there had been a technical problem, without specifying which bidder had been involved. According to the bureau, the glitch “resulted in one bidder being unable to access the three-month action. Our manual attempts to address the issue ultimately resulted in the bidder being awarded a larger sum of six-month bills than originally intended.”

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