Winehole23
04-16-2009, 07:19 AM
April 14, 2009, 6:55 am The Case of the Missing Month (http://norris.blogs.nytimes.com/2009/04/14/the-case-of-the-missing-month/)
by Floyd Norris
I blogged the Goldman Sachs call this morning, starting at 7 a.m. The newest posts are at the top.
7:50 a.m.| Call Over: The call ended quietly with little additional talk about December.
7:45 a.m.| How Quickly We Forget: One analyst points out how much money Goldman seems to have put aside for liquidity, and complains that the decision reduces profit margins. The response: “In this environment, prudence is the better path.”
Goldman said it also expects capital markets activity to keep picking up, at least for quality assets, and notes that there are two (small) initial public offerings scheduled this week, the first such week since last summer.
7:40 a.m.| Distressed Assets: Goldman thinks that within a few months the buyers and sellers of distressed assets will come together and will then provide opportunities for the bank.
That forecast, if it comes through, would end a lot of the problem with the marking such assets. I suspect a lot of banks will not like to see that happen. For the more distressed banks, it could produce pressures to take more write-downs.
7:25 a.m.| A.I.G.: Guy Moszkowski of Merrill Lynch wants to know if they made money from the now-famous government-financed American International Group transactions.
The answer is cautious. Most of the impact was in December. For the first quarter, the total A.I.G. effect on earnings was, in round numbers, zero.
So what was the A.I.G. effect in December? They did not say. Is it possible the loss then would have been larger without the A.I.G. bailout? We’ll see if any analyst asks.
7:15 a.m.| December Write-Offs: They did discuss December up front (unlike in the news release). It sounds as if they took write-offs everywhere, including commercial real estate and private equity. They took more write-offs in both of those areas in the first quarter.
So how did they make money? One answer is that this is a great time to be in the banking business — if you ignore what we politely call legacy assets. Customers are desperate for cash, and will pay for it. Fees are up. If underwriting volumes continue to rise, this could be a great, great year. Assuming, of course, that the write-offs are over.
6:50 a.m.| Where’s December?: Goldman Sachs reported a profit of $1.8 billion in the first quarter, and plans to sell $5 billion in stock and get out of the government’s clutches, if it can.
How did it do that? One way was to hide a lot of losses in not-so-plain sight.
Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s earnings statement (http://www2.goldmansachs.com/our-firm/press/press-releases/current/pdfs/2009-q1-earnings.pdf), and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ended in February (http://www2.goldmansachs.com/our-firm/press/press-releases/archived/2008/pdfs/2008-q1-earnings.pdf).
The orphan month featured — surprise — lots of write-offs. The pretax loss was $1.3 billion, and the after-tax loss was $780 million.
Would the firm have had a profit if it had stuck to its old calendar, and had to include December and exclude March?
We’ll see if they discuss that.
by Floyd Norris
I blogged the Goldman Sachs call this morning, starting at 7 a.m. The newest posts are at the top.
7:50 a.m.| Call Over: The call ended quietly with little additional talk about December.
7:45 a.m.| How Quickly We Forget: One analyst points out how much money Goldman seems to have put aside for liquidity, and complains that the decision reduces profit margins. The response: “In this environment, prudence is the better path.”
Goldman said it also expects capital markets activity to keep picking up, at least for quality assets, and notes that there are two (small) initial public offerings scheduled this week, the first such week since last summer.
7:40 a.m.| Distressed Assets: Goldman thinks that within a few months the buyers and sellers of distressed assets will come together and will then provide opportunities for the bank.
That forecast, if it comes through, would end a lot of the problem with the marking such assets. I suspect a lot of banks will not like to see that happen. For the more distressed banks, it could produce pressures to take more write-downs.
7:25 a.m.| A.I.G.: Guy Moszkowski of Merrill Lynch wants to know if they made money from the now-famous government-financed American International Group transactions.
The answer is cautious. Most of the impact was in December. For the first quarter, the total A.I.G. effect on earnings was, in round numbers, zero.
So what was the A.I.G. effect in December? They did not say. Is it possible the loss then would have been larger without the A.I.G. bailout? We’ll see if any analyst asks.
7:15 a.m.| December Write-Offs: They did discuss December up front (unlike in the news release). It sounds as if they took write-offs everywhere, including commercial real estate and private equity. They took more write-offs in both of those areas in the first quarter.
So how did they make money? One answer is that this is a great time to be in the banking business — if you ignore what we politely call legacy assets. Customers are desperate for cash, and will pay for it. Fees are up. If underwriting volumes continue to rise, this could be a great, great year. Assuming, of course, that the write-offs are over.
6:50 a.m.| Where’s December?: Goldman Sachs reported a profit of $1.8 billion in the first quarter, and plans to sell $5 billion in stock and get out of the government’s clutches, if it can.
How did it do that? One way was to hide a lot of losses in not-so-plain sight.
Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s earnings statement (http://www2.goldmansachs.com/our-firm/press/press-releases/current/pdfs/2009-q1-earnings.pdf), and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ended in February (http://www2.goldmansachs.com/our-firm/press/press-releases/archived/2008/pdfs/2008-q1-earnings.pdf).
The orphan month featured — surprise — lots of write-offs. The pretax loss was $1.3 billion, and the after-tax loss was $780 million.
Would the firm have had a profit if it had stuck to its old calendar, and had to include December and exclude March?
We’ll see if they discuss that.