Monday, April 13, 2009

That's gold Jerry, gold!

Goldman's clearly feeling very confident in its ability to maintain its role as masters of the universe. Substantial profits and they want to give the TARP money back ASAP. Perhaps the most interesting tidbit is the giant reserve for employee compensation. $4.7 billion or 50% of revenues (over $168k PER EMPLOYEE!!). Think Goldman's hiring, because I'd like to get a piece of the pie???

Via the Wall Street Journal...

"Goldman Sachs posted a $1.7 billion profit today — and with it, Goldman set aside $4.7 billion for salaries and bonuses. That $4.7 billion is 50% of Goldman’s revenues for the quarter, a jump up from the same time last year, when salary and bonuses accounted for 48% of Goldman’s revenues. In essence, things are still ugly in the market — but even so, Goldman actually said it would reserve more money for staff salaries in the first quarter than it did last year.

Goldman’s boost to compensation costs comes even as the firm employs fewer people, having cut its headcount by 7% since the end of last year.

Now Goldman is the first big bank to rush to pay that TARP money back with a $5 billion capital-raise. It makes sense: without TARP funds to worry about, Goldman does not have to pinch pennies excessively or prepare itself for 90% bonus taxes. "

If any investment bank survives the downturn intact it should be Goldman. They dominate every aspect of the banking world (and some would argue the political world as well).

Their banking/trading revenues benefited from increased risk-taking and if you've been on the right side of the trade this year has been very profitable. However, I think it's important to consider that much of their "profit" may be money that has passed through AIG to Goldman as referred to here in a note that was posted this morning before Goldman's announcement.......

"There is a rumor about Goldman Sachs flying around on the street - allegedly they are about to report their second-best quarter in history, +$12 billion or so.

Gee, you don't think being paid by the taxpayer through AIG's "conduit" for losses that didn't (yet) happen at 100 cents on the dollar might have anything to do with that, do you?

And further (and potentially much worse) there is the repeated statement by Goldman executives that they were "fully hedged" against a potential counterparty default by AIG.
One wonders - was that "hedge" to be short the equity on AIG itself, perhaps?

Because if that's how Goldman hedged they got paid twice and the taxpayer literally got robbed."

This is fairly complex, but the government has funneled billions into AIG that flowed through to their counterparties (mainly Goldman and other big banks) to cover them for "potential" losses. If, as Goldman has suggested, they were fully hedged (ie, had insurance against losses with AIG) then Goldman and the other banks may have made a profit on AIG's collapse and also enjoyed a windfall as billions flowed from you the taxpayer to Wall Street. It's good to be the king. I don't believe anyone in Congress could decipher this series of transactions, but a group of good forensic accountants and laid off Lehman/Bear Sterns traders probably could.

If we're offering $50 million for OBL, I think it's fair to at least offer up $5 million to anyone that can succinctly interpret the data regarding the AIG/Goldman situation. This could be someones Woodward and Bernstein moment if they seized the moment.

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Oh, remember how I cautioned last week not to get to giddy about the Wells Fargo news because they still operate in that sinkhole called California?

Well, today people started to realize that the announcement didn't mesh with reality and some suggested Wells Fargo could need up to another $50 billion to survive the downturn. Boy that doesn't sound like the rosy forecast we heard from the company. From, one analyst at KBW

Details were scarce and we believe that much of the positive news in the preliminary results had to do with merger accounting, revised accounting standards and mortgage default moratoriums, rather than underlying trends,” wrote Cannon, who downgraded the shares to “underperform” from “market perform.” “We expect earnings and capital to be under pressure due to continued economic weakness.”

Wells Fargo's decision to play loose with the facts is likely to come back to haunt them. I won't be surprised if their press release of 4/9/09 proves to be the basis for some fairly significant shareholder lawsuits one day.

Cheers!

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