Goldman-Sachs Posts $1.8 Billion 1Q Profit, Looks to Sell Stock, Repay TARP

http://money.cnn.com/2009/04/13/news/goldman.earnings.report.fortune/index.htm

by ojbyrne • 17 years ago

20 32 17 years ago

money.cnn.com

ashishk• 17 years ago

this is fantastic news, though i guess it makes sense. goldman attracts the most talented folks just by winking at them.

smanek• 17 years ago

There's an old joke that a new MD at Goldman is looking to hire 5 new analysts for his department.

The new MD goes to his old boss and asks, "What should I do? I have 10 resumes from 10 great candidates, who all went to Ivy League school, graduated with perfect GPAs and all interviewed very well. How do I decide who to hire?"

The old boss asks to see the pile of resumes, and gives them a quick glance. He then shuffles the pile of resumes, throws the top five in the garbage, and hands the new MD the remaining five and says, "Hire these five."

The new MD is shocked - he exclaims, "Is this how Goldman Sachs does is hiring?! It's so capricious!"

The old boss responds, "It isn't capricious. Goldman Sachs doesn't hire unlucky people - and all the resumes I threw out belong to unlucky people."

Rod• 17 years ago

I heard the same joke about McKinsey. Makes sense, after all McKinsey is the Goldman Sachs of consulting.

ajju3• 17 years ago

Goldman's secret to "success" in this instance is the freshly changed accounting rules (see my comment elsewhere) and in the recent past has been the patronage of ex-Goldman Sachs CEO and now treasury secretary Paulson.

kqr2• 17 years ago

Actually, Paulson is no longer the Treasury Secretary. Timothy Geitner holds that post.

jacoblyles4• 17 years ago

Accounting rule changes that were long overdue. I know of at least one case of a mortgage firm whose loans were performing but was put under by the decline in market value of its assets.

Presumably if Goldman Sachs' success is solely due to changes in accounting rules, we will see most other financial firms follow in their footsteps.

mattobrien• 17 years ago

This is most likely not fantastic news. This is most likely terribly misleading news. As noted, suspending aspects of mark-to-market undoubtedly helped their bottom line. And who knows how much of these "profits" were the result of one-time payments from the government via AIG. There is so much opacity with all banks' financial statements that trusting them seems unwise. Wells Fargo claimed they had record profits in Q1, and just today an analyst estimated that Wells actually needs at least another $50 billion. Who do you trust - people effectively talking up their own books, or independent observers who still see huge problems ahead?

ilkhd2• 17 years ago

Goldman Sachs is one of not many who had been behaving prudently. Next news would probably be "Chase is doing good.." or some other obvious thing brought as revelation.

ajju3• 17 years ago

Accounting regulations were changed last week [1] so that banks do not have to "mark to market" in "inactive markets" anymore. Since Goldman Sachs is now a bank holding company, they don't have to do this either. What is now a ~2B profit would probably have been a far greater loss by the old rules.

[1] http://www.reuters.com/article/governmentFilingsNews/idUSN09...

j2d22• 17 years ago

Interestingly, they're sitting on over $100B cash and cash equiv.

http://finance.yahoo.com/q/bs?s=GS&annual

ajju3• 17 years ago

With accounts payable of $257B, so the cash doesn't really mean that much and a net ~64B assets-liabilities and all those numbers are from Nov '08

websevenpointoh• 17 years ago

The way these things turn out is both sad and terrifying.

op126• 17 years ago

We should be careful and not equate what they have the option of doing to what they are actually doing. They in particular have been sticklers in marking to market no matter what, regardless of if they are a bank holding company or not (In the conference call this is reiterated many times).

It would not have been a far greater loss under the old rules, that much is clear from reading the balance sheet and disclosure of the relatively small size of legacy assets (the assets that would be impacted by different marking methods). Income was driven in pure trade faciliation, good old fashioned buy low and sell high in the capacity of a financial intermediary.

gills3• 17 years ago

As you watch democracy die to thunderous applause, remember to subtract the $10 billion of government funding and the $13 billion looted from the taxpayers through AIG face-value swap repayments.

jacoblyles4• 17 years ago

At least the first sum you mentioned does not add to profit.

gills3• 17 years ago

You are correct, sorry. That's tier capital, right?

op126• 17 years ago

As someone else mentioned, you should not subtract 10 billion from the income number because it is not included in the profit in the first place. It is a loan, which they pay 5% for the first 5 years and 9% for the years after that to the American taxpayer.

Additionally, 13 billion "looted" from AIG/taxpayers is a complicated issue that is being completely misinterpreted. As with a lot of transactions that involve questionable counterparties, they took collateral. So as the insurance contracts started to go into their favor, they asked for collateral to feel safer that they would be paid off even if they went bankrupt. The idea goes like, insurance is looking like it is in my favor, pledge me an asset so that I know there is a good chance I will be made whole on this. So in this case, those assets were treasury bills.

As they have stated many times, their contracts with AIG were largey collateralized. This means if they were owed 13 billion, then AIG pledged, for instance, something along the lines of 8-10 billion in treasury securities. Had AIG gone bankrupt and not been saved by the US taxpayer, they keep the treasury securities and lose a few billion, but certainly not the full amount like everyone thinks. If they are saved, which they were, then they give back the collateral and take in the cash.

Raplh2• 17 years ago

I'm surprised GS wants to pay back the TARP $10billion so quickly. They are paying $500Million/yr to keep that $10Billion.

GS also "borrowed" $5Billion from Berkshire Hathaway, giving BH preferred shares for its $5Billion. The preferred shares pay 10%. So GS is paying $500Million/yr to keep that $5Billion from BH.

The BH preferred does have a 10% premium that GS must pay to retire it. But this means GS has the choice: 1) Retire $500Million/year of interest payments by giving $10Billion cash to TARP 2) Retire $500Million/year of interest payments by giving $5.5Billion cash to Berkshire Hathaway.

It makes you wonder just what is so bad about holding TARP money that it is worth $4.5Billion to buy your way out from under.

Raplh2• 17 years ago

I have discovered the reason. TARP requires that until it is paid back, all sorts of other optional uses of cash are ruled out, such as pre-paying off other debt.

Goldman-Sachs Posts $1.8 Billion 1Q Profit, Looks to Sell Stock, Repay TARP

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