It’s another all-out pump-up-the-market-for-fiscal-earnings-reporting season, and it looks like Goldman Sachs is going to carry the ball for second quarter 2009. The hype is up and the spin is already dizzying. Everybody seems to have forgotten that just a few short months ago the golden one was on the mat hemorrhaging red ink from every nook and cranny of its balance sheet. And forget it is exactly what Goldman Sachs wants you to do. Yeah right.
Most of Wall Street, and America, is still waiting for an economic recovery. Then there is Goldman Sachs.Analysts predict the bank earned a profit of more than $2 billion in the March-June period, because of its trading prowess across world markets. If they are right, the bank’s rivals will once again be left to wonder exactly how Goldman, long the envy of Wall Street, could have rebounded so drastically only months after the nation’s financial industry was shaken to its foundations.
The bank’s rivals know exactly how Goldman rebounded so drastically. One should wonder how the taxpayer might rebound from the drastic violent pillaging by Goldman Sachs.
The obsessive speculation has already begun, along with banter about how Goldman’s rapid return to minting money will be perceived by lawmakers and taxpayers who aided Goldman with a multibillion-dollar cushion last fall.
“They exist, and others don’t, and taxpayers made it possible,” said one industry consultant, who, like many people interviewed for this article, declined to be named for fear of jeopardizing business relationships.
John Gotti was no less sophisticated in his business dealings.
Startling, too, is how much of its revenue Goldman is expected to share with its employees. Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees, or more than $600,000 an employee. Top producers stand to earn millions.
Goldman was humbled along with the rest of Wall Street when the financial markets froze last year. As a result, it lost money in the final quarter, a rarity for the bank. Along with other big banks, it was compelled to accept billions of dollars in federal aid, which it paid back last month.
But if the analysts are right — and given the vagaries of Wall Street trading, any hard forecast is little more than a guess — the results will extend a remarkable run for Goldman that was marred only by the single quarterly loss last fall of $2.12 billion.
Goldman Sachs is betting on the markets, but the markets are also betting on Goldman: Its share price has soared 68 percent this year, closing at $141.87 on Friday. The stock is still well off its record high of $250.70, reached in 2007.
There are no vagaries on Wall Street. There are only scams, so the analysts are right because they are fed the numbers by Goldman. Then they deliberately drop enough off so that when the bank reports officially, they beat the lowered estimates. Here we go again, only this time, the low ball is a high $2.2 billion.
In essence, Goldman has managed to do again what it has always done so well: embrace risks that its rivals feared to take and, for the most part, manage those risks better than its rivals dreamed possible.
Traders said Goldman capitalized on the tumult in the credit markets to reap a fortune trading bonds. It profitably navigated a white-knuckled run in stock markets. It bought and sold volatile currencies, as well as commodities like oil. And it reaped lucrative fees from the high-margin business of underwriting stock offerings, which surged this year as other, more troubled financialinstitutions raced to raise capital.
Again there is no white-knuckled white-water rafting going on. Goldman operates the world’s largest commodities trading floor and proudly manipulates those markets.
Most interesting in this Bloomberg article is the following statement by Assisitant U.S, Attorney Joseph Facciponti:
“The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” Facciponti said.
Is this an admission by Goldman Sachs that there is the possibility of manipulation in the market?
“Someone takes risks and makes money — maybe they were smart, maybe they were lucky,” Mr. Bookstaber said. “But then everyone else feels like they need to take the same risks.”
They were neither. Weren’t you listening?
While others are shying away from risks, Goldman is courting them. A common measure of risk-taking at Goldman and other banks is known as value at risk, which estimates how much money a firm might lose on a single day. At Goldman, that figure rose by more than 20 percent in the first quarter. Analysts predict Goldman’s V.A.R. ran high in the second quarter as well.
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