5 ms·

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

20 points by ojbyrne 18y ago

ashishk 18y ago
this is fantastic news, though i guess it makes sense. goldman attracts the most talented folks just by winking at them.
- smanek 18y 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 18y ago
    I heard the same joke about McKinsey. Makes sense, after all McKinsey is the Goldman Sachs of consulting.
- ajju 18y 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 18y ago
    Actually, Paulson is no longer the Treasury Secretary. Timothy Geitner holds that post.
  - jacoblyles 18y 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 18y 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 18y 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.
ajju 18y 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/idUSN0931201320090409 http://www.reuters.com/article/governmentFilingsNews/idUSN09...
- j2d2 18y ago
  Interestingly, they're sitting on over $100B cash and cash equiv. http://finance.yahoo.com/q/bs?s=GS&annual http://finance.yahoo.com/q/bs?s=GS&annual
  - ajju 18y 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
    - j2d2 18y ago
      Fair points.
- websevenpointoh 18y ago
  The way these things turn out is both sad and terrifying.
- op12 18y 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.
gills 18y 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.
- jacoblyles 18y ago
  At least the first sum you mentioned does not add to profit.
  - gills 18y ago
    You are correct, sorry. That's tier capital, right?
    - jacoblyles 18y ago
      I never had bank risk-adjusted capital regulations memorized, and it is much too complicated for me to care to relearn now. However, the addition of a new liquidity source on the balance sheet in general has no direct effect on the income statement. Borrowing money is not income. Indirectly, it will have an effect through the interest expense owed to the owner of the liability and the interest income earned from the additional cash. However, the net interest income or expense is likely to be much less than the $10 billion face value of the liability. A caveat: I didn't read through their financial statements, and I refuse to do so unless someone will pay me.
      - jjs 18y ago
        > A caveat: I didn't read through their financial statements, and I refuse to do so unless someone will pay me. Upvoted for badass mercenary attitude. You should try consulting! :D
      - anamax 18y ago
        > Borrowing money is not income. No, but paying for their losses does mean that whatever income they do have isn't offset by said losses, and that produces profit. Goldman's counter-party risk was subsidized by taxpayers via AIG. If doing so really was a good idea, it should have been done directly and in public.
Raplh 18y 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.
- Raplh 18y 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. R:

20 points by ojbyrne 18y ago

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

smanek 18y 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 18y ago
  I heard the same joke about McKinsey. Makes sense, after all McKinsey is the Goldman Sachs of consulting.
ajju 18y 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 18y ago
  Actually, Paulson is no longer the Treasury Secretary. Timothy Geitner holds that post.
- jacoblyles 18y 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 18y 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 18y 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.

ajju 18y 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/idUSN0931201320090409 http://www.reuters.com/article/governmentFilingsNews/idUSN09...

j2d2 18y ago
Interestingly, they're sitting on over $100B cash and cash equiv. http://finance.yahoo.com/q/bs?s=GS&annual http://finance.yahoo.com/q/bs?s=GS&annual
- ajju 18y 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
  - j2d2 18y ago
    Fair points.
websevenpointoh 18y ago
The way these things turn out is both sad and terrifying.
op12 18y 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.

gills 18y 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.

jacoblyles 18y ago
At least the first sum you mentioned does not add to profit.
- gills 18y ago
  You are correct, sorry. That's tier capital, right?
  - jacoblyles 18y ago
    I never had bank risk-adjusted capital regulations memorized, and it is much too complicated for me to care to relearn now. However, the addition of a new liquidity source on the balance sheet in general has no direct effect on the income statement. Borrowing money is not income. Indirectly, it will have an effect through the interest expense owed to the owner of the liability and the interest income earned from the additional cash. However, the net interest income or expense is likely to be much less than the $10 billion face value of the liability. A caveat: I didn't read through their financial statements, and I refuse to do so unless someone will pay me.
    - jjs 18y ago
      > A caveat: I didn't read through their financial statements, and I refuse to do so unless someone will pay me. Upvoted for badass mercenary attitude. You should try consulting! :D
    - anamax 18y ago
      > Borrowing money is not income. No, but paying for their losses does mean that whatever income they do have isn't offset by said losses, and that produces profit. Goldman's counter-party risk was subsidized by taxpayers via AIG. If doing so really was a good idea, it should have been done directly and in public.

Raplh 18y 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.

Raplh 18y 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. R: