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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.

RandomGuy
04-16-2009, 09:44 AM
WHAT A BUNCH OF FUCKING WEASELS!

Damn, I knew that there was some trick they had to have played to get that profitability for last year.

This saved me from digging into the financials myself to find out, although I will still probably do so at some point, and run my own analysis.

Thanks!

RandomGuy
04-16-2009, 10:03 AM
This is what is known as “taking a bath”.

Basically, you can “save up” a lot of write-offs for one really really bad quarter.

What they did here was save up the losses for December with the intention of switching over to the new reporting period the next quarter.

This has the effect of “dumping” the losses for December in prior periods on the most current financial statements.

Some of the losses that probably would have more logically been taken this quarter were probably lumped into December’s losses.

This is called “earnings management”, and although it is technically within the boundaries of acceptable accounting, it is one of the ways that companies can distort their results to make themselves look better.


“Gee look at last quarter’s losses! It was soooo bad, but this quarter we earned a modest profit, so we are really turning things around! Aren’t we great? Can I have a bonus now?”

Winehole23
04-16-2009, 01:46 PM
Related: http://www.bloomberg.com/apps/news?pid=20601110&sid=a6sv0hG.nW7g

RandomGuy
04-16-2009, 02:47 PM
Related: http://www.bloomberg.com/apps/news?pid=20601110&sid=a6sv0hG.nW7g


The bottom line: Net income isn’t necessarily income. And it means nothing without complete financial statements.

Well put. The columnist seems to know a good chunk about banking, based on the technical analysis.


Gimmick No. 3: Otherworldly assets.

Look at Wells’s Dec. 31 balance sheet, and you’ll see a $109.8 billion line item called “other assets.” What’s in that number? For that breakdown, you need to go to a footnote in Wells’s financial statements. And here’s where it gets comical.

The footnote says the largest component was a $44.2 billion bucket that Wells labeled as “other.” Yes, that’s right: The biggest portion of “other assets” was “other.” :spless: And what did this include? The disclosure didn’t say. Neither would Bernard.

Talk about a black box. That $44.2 billion is more than Wells’s tangible common equity, even using the bank’s dodgy number. And we don’t have a clue what’s in there.

Translation:

"We have assets. Trust us, we wouldn't possibly lie to you."

Anyone who bought this stock based on this report deserves to lose money.

Hopefully the run up in the stock was due to short-sellers covering their losses as the stock went up, and not mom-and-pop investors.