Posted on 07/14/2009 9:05:55 PM PDT by FromLori
Wall Street's meltdown fueled the most profitable quarter ever at Goldman Sachs Group Inc., which snatched business away from weakened rivals and churned out huge trading gains by revving up risk taking.
With competitors such as Lehman Brothers Holdings Inc. and Bear Stearns Cos. gone, and others like Citigroup Inc. flailing, Goldman appears to be pulling off one of the biggest market-share grabs in Wall Street history.
Net income in the second quarter was $3.44 billion, or $4.93 a share -- more than Goldman earned in all of 2008, when it was hammered by the financial crisis. Analysts had expected strong earnings, but were surprised by how much the firm exceeded expectations.
The primary earnings driver was wider profit margins on the buying and selling of securities, in part due to fewer competitors.
Goldman's resurgence, including a 33% jump in money set aside for compensation and benefits in the year's first half, could invite criticism that it is benefiting too much from the government's Wall Street rescue. Its quarter, on the other hand, could be viewed as evidence that the government's intervention has succeeded in returning some firms to solid ground.
Goldman executives were cautious Tuesday about whether the company can keep churning out such profits.
"We are not feeling great about the economy," said Goldman Chief Financial Officer David Viniar. "But our clients need to trade and need to hedge and need risk-management services, which gives us business."
The gains -- net revenue was up 46% to $13.76 billion -- bolster Goldman's reputation as one of the savviest on Wall Street.
They also underscore the emergence of a handful of large U.S. financial institutions that are likely to profit mightily from the wreckage left by the financial crisis.
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J.P. Morgan Chase & Co. is expected to report strong quarterly results on Thursday that include a lift from retail branches scooped up when Washington Mutual Inc.’s banking operations failed last year.
The New York bank is increasingly flexing its muscles with the U.S. government, including opposing parts of the Obama administration’s efforts to regulate derivatives.
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Reuters
The Goldman Sachs building in New York.
J.P. Morgan and Goldman recently freed themselves from the limitations on pay and other business practices that came with the Troubled Asset Relief Program, by repaying federal loans they got last fall.
“Right now, [Goldman is] one of only a few people on the beach, so they’re getting all the girls,” said Roy Smith, a finance professor at New York University and a former Goldman partner. “It’s about to get more crowded, though.” Competing firms, he notes, also have paid back the government, including Morgan Stanley.
Analysts surveyed by Thomson Reuters expected Goldman to earn $3.48 a share.
Its actual profit blew through that target by about 40%. Goldman’s shares, which had risen sharply over the past week in anticipation of its earnings, rose 22 cents to $149.66 in 4 p.m. New York Stock Exchange composite trading on Tuesday.
Goldman’s equity and fixed-income, currency and commodities desks posted record results and accounted for 75% of the firm’s net revenue.
Trading in credit products, interest-rate products and currencies was particularly strong, as was stock trading in general.
While Goldman is perhaps best known for profitable proprietary bets made using its own capital, it said Tuesday that the bulk of its quarterly profit came from increased client trading in various product lines.
It makes money charging commissions and by taking so-called principal risk, buying a security from a client and then selling it at a profit.
The firm also logged gains from a number of investments, including a $948 million gain from its stake in Industrial and Commercial Bank of China Ltd. That helped offset a 15% year-over-year drop in investment-banking net revenue, and a loss of $499 million from various commercial-real-estate investments.
Paydays Ahead
The strong quarter puts Goldman employees in line for an impressive payday when the firm doles out bonuses in January. So far, the firm has set aside $11.36 billion for compensation and benefits during the year’s first six months, enough to pay each employee $386,429 for the period.
If Goldman continues to accrue compensation at that rate, employees are on track to make an average of about $770,000 each, the largest per-person payout in Goldman’s history.
Such payouts would come in the wake of an uproar over the past year about huge pay packages on Wall Street.
Mr. Viniar said Tuesday that Goldman has a “pay-for-performance culture,” and its employees should expect that if 2009 ends as it has begun, they will be paid well.
Goldman ramped up its risk-taking during the quarter. By the end of the quarter, its VAR, or “value at risk,” had risen by 33% from the year-ago level, to $245 million, up from $240 million in the previous quarter. VAR represents an estimate of how much the firm could lose in a single day.
Less Leverage
At the same, Goldman reduced its leverage ratio, a measure of how much it is using borrowed money to magnify bets. That ratio fell to 14.2 at the end of the quarter, from 27.9 at the beginning of 2008.
“Goldman produced these results on half the leverage, and no one believed they could,” said Tom Marsico, founder of Marsico Capital Management, which owns 13 million Goldman shares.
Data show Goldman has gained market share as rivals like Lehman have disappeared. In the second quarter, the firm ranked No. 2 in revenue derived from global equity underwriting, with a 12% market share, trailing only J.P. Morgan, according to data provider Dealogic.
In the second quarter of 2007, Goldman had ranked No. 5 in that category.
Leading such stock deals often leads to more business for trading desks.
Goldman’s stock-trading division posted net revenue of $3.2 billion for the quarter, up 59% from the first quarter, and 28% from the quarter ended May 30, 2008.
Goldman also picked up some business from clients that had used competitors in the past. U.S. Bancorp tapped Goldman Sachs as one of its lead underwriters on a stock offering in May, the first time it had used Goldman in that role in more than five years, Dealogic data showed.
The banking firm had used Citigroup and Lehman Brothers, among others, on similar deals.
Related
http://www.americanthinker.com/2009/07/will_dems_allow_goldman_to_man.html
Payout money from tax payers by way of AIG!!
Goldman Sachs, and its fearless leader, Lloyd Blankfein, through their govt. connections, made sure that Lehman Bros. and Bear Stearns were “wiped out”. In other words, no bailout for them. Since the two were major competitors of Goldman, when they went under, Goldman took their market share. Lloyd Blankfein and Ben Bernanke are “thick as thieves”. Goldman now completely dominates the securities trading market with an Obama sanctioned monopoly.
Larry Fink, CEO of Blackrock, a private equity company, and Blankfein, have direct access to the Whit House via Bernanke. To learn about Fink, here is a quickie website below for an overview. Fink and Blankfein will make all the money under Obama. Count on it.
http://www.senseoncents.com/2009/06/the-king-of-wall-street-larry-fink/
The payouts come in spite of the enormous losses racked up by the banking sector, which have led to taxpayers around the world stumping up huge sums of money to keep the financial system alive. END NEWS FLASH
FIVE SECOND QUIZ: Can you guess where G/S got all that money? (/snic)
WHAT WALL STREET DOES BEST---LOOT AND PILLAGE PENSION FUNDS Since Ex-Goldman Sachs head, Jon Corzine disappeared into Jersey's Gold Dome, as the state's governor, several multi-billion dollar state agencies have gone belly-up---with NO trace of the monies. AND for the second year in a row, New Jersey’s pension assets fell. When the FY ended June 30, it had $63B---down from $78.2 billion a year earlier. The low was $56.4B last February.
When Corzine got in, he stationed four of his G/S buddies in key state agencies including G/S alumnus Bradley Abelow as state Treasurer.
Then Goldman Sachs SUDDENLY opened an office in Princeton---within spitting distance of Jon's statehouse office. Handy when the boys get-together to sip Chevas Regal in Baccarat crystal glasses while deciding where to next load-up the Brinks truck at the statehouse.
Goldman Sachs Hedge Fund Partners (established the year Corzine took office)
c/o Goldman Sachs Hedge Fund
701 Mount Lucas Rd
Princeton, NJ 08540-1911
Website: www.goldman.com
PRINCETON GOLDMAN'S STATED PURPOSE Advertises it has $6.5 billion in committed capital and seeks investments in traditional infrastructure sectors including transport infrastructure such as state toll roads, state airports and ports as well as state-regulated gas, water and electrical utilities.
Mother Jones magazine circa Feb 2007 reported on the activities of Mark Florian, Chief Operating Officer of Goldman Sachs' municipal finance division. Seems Florian was traveling to statehouses across the US to convince state officials that selling state assets would be "mutually beneficial." Corzine's deals with Florian about state assets would be interesting IF MADE PUBLIC.
The Cristal will be flowing like water at Corzine's Hamptons estate. Goldman Sachs cronies are cashing in. The Wall Street crowd will celebrate bigtime.
Thanks I borrowed some of your words they were excellent what do you think?
http://bluelori.blogspot.com/2009/07/private-profit-public-debt-we-should.html
“WHAT WALL STREET DOES BEST-—LOOT AND PILLAGE PENSION FUNDS Since Ex-Goldman Sachs head, Jon Corzine disappeared into Jersey’s Gold Dome, as the state’s governor, several multi-billion dollar state agencies have gone belly-up-—with NO trace of the monies.”
Speaking of disappearing dough. Anything new on the(17.5 billion was it?) from the Stimulus fund that was parked in NJ?
” Good overview of the White House/Wall Street connection. Goldman Sachs always wins. They know how to buy politicians, and Obama was easy.
Goldman Sachs POTUS
(Pillager of the United States)
Obama TOTUS
(Torturer of the United States)
It's not just Obama. GWB/Paulson were very friendly to GS too, and it was amazing how the economy seemed to fall apart just before the 2008 election.
Even if we throw Obama out in 2012, what kind of republican would be elected POTUS when GS, the MSM, ACORN, Eric Holder, and the usual leftist nuts want to keep the same scams going? We might get a new R POTUS in 2012 who is a co-conspirator with the same old oligarchy.
“Even if we throw Obama out in 2012, what kind of republican would be elected POTUS when GS, the MSM, ACORN, Eric Holder, and the usual leftist nuts want to keep the same scams going? We might get a new R POTUS in 2012 who is a co-conspirator with the same old oligarchy.”
This could happen again. The best we can do is run a NON_RINO.
As you stated, Even W’s ties to investment bankers ran deep. 3 generations.
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