Archive for Wednesday, July 15, 2009

Goldman-Sachs back to big profits

Company repays bailout, still posts $2.7 billion gain

July 15, 2009

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Goldman Sachs is emerging as the king of post-meltdown Wall Street.

Already the nation’s most powerful financial company before the credit crisis, the bank profited handsomely from Wall Street’s rally and the recovering credit markets during the second quarter and distanced itself from the few competitors still standing.

The result was a stunning profit of $2.7 billion — even as the bank repaid $10 billion in federal bailout money. The total blew past what Wall Street analysts were expecting.

Goldman pulled off a remarkably speedy recovery from last fall, when it lost $3.3 billion in four months during the worst of the financial crisis. And it had its best quarter since the end of 2007, when the recession was just beginning.

The results also confirm that despite controversy over everything from its role in the meltdown and the bonuses it pays executives and even the power of its alumni who sit at the highest levels of government, one thing remains constant: Goldman knows how to make money better than anybody else on Wall Street.

While other firms have curtailed risk and preserved cash to protect against further losses, Goldman has returned to what made it so profitable in the past — high-risk trading and investing in everything from mortgages to commodities and underwriting of stock and debt offers.

“Goldman really is in a class by themselves,” said Phillip Silitschanu, a senior analyst with Aite Group. “They’ve always been the golden child of the market.”

Of course, Goldman also benefited because there are fewer competitors on Wall Street following the demise of Bear Stearns Cos. and Lehman Brothers Holdings Inc. in 2008. Both companies were felled by their investments in risky, and ultimately failed, mortgage-backed securities.

And in a sign that the mood in Washington may be shifting, there was little outrage directed at Goldman from officials who have criticized the firm in recent months. Goldman took the bailout cash under pressure from the government at a time when faith in its financial institutions was shaken to its core.

While Goldman is making money in its core businesses, it’s also gotten some hard cash into its corporate treasury that has also strengthened the company. Warren Buffett made a well-publicized investment of $5 billion in the bank in September. Goldman also benefited from the government’s bailout money to insurer American International Group Inc., which paid Goldman $12.9 billion during the first quarter. AIG was forced by contracts it had signed to compensate banks like Goldman for losses they suffered from complex mortgage investments.

On Tuesday, President Barack Obama’s press secretary was reluctant to discuss Goldman’s results.

“I’m generally hesitant — as I think the Treasury Department is — to comment on individual earnings reports,” Robert Gibbs, the president’s press secretary, said during a meeting with reporters aboard Air Force One.

Goldman is the first bank to report second-quarter earnings. JP Morgan Chase, Citigroup and Bank of America will follow this week.

By repaying the bailout money, Goldman freed itself of government-imposed restrictions on executive pay and bonuses that some of its rivals, including Citigroup and Bank of America, are still under. Goldman spent $6.6 billion in the quarter on pay and benefits, 41 percent more than in the first quarter.

Goldman’s peers have been stung by bigger loan losses because of their focus on retail banking and because they dealt more in the risky mortgage-backed securities that drained hundreds of billions of dollars from other firms.

Comments

Godot 5 years, 9 months ago

Golman Suchs.

America, wake up and realize who your real master is.

puddleglum 5 years, 9 months ago

Dick Cheney is getting beat at his own game

Ceallach 5 years, 9 months ago

GS has published their profits for 2008 (crowd cheers). It would be interesting to see how much they paid in federal taxes for 2008.

puddleglum 5 years, 9 months ago

ceallach, you must have watched the Bill o'reilly show last night. it was a record amount of froth.

Satirical 5 years, 9 months ago

Liberty_One....

Very well stated. The government always claims it is there to help, and has good intentions. But good intentions don't matter, only results. Liberals often fail to see the long-term ramifications of constant government interference. "The bureacracy is expanding to meet the needs of the expanding bureacracy."

Godot 5 years, 9 months ago

The Obama administration is permeated by former Goldman Sachs employees, and Goldman Sachs current employees are "advising" Obama on economics. We do not have a democracy, or a republic, we have an oligarchy.

georgiahawk 5 years, 9 months ago

Agnostik are you really that naive? Power comes in many forms, not just governmental power as you have so narrowly defined it. Corporations need to be regulated, without regulations they will run roughshod over us all in the name of profits (their only God). How many times do we have to learn that lesson? They are not to be trusted any more than the government should be trusted when they have all of the power to do what they want. Power corrupts, absolute power corrupts absolutely!

puddleglum 5 years, 9 months ago

tom tom, did you just type Bill O'reilly and facts in the same paragraph? He said S&G didn't pay any taxes last year. that is incorrect. He also said that cap & trade was bad because india china and others don't do the same as us. That is opinion, not fact- and even still his opinion is wrong. example: China's law for one child per couple: U.S.A. doesn't do that-so lets change that. India's mandatory military service policy. U.S.A. doesn't do that-so lets change that too... China's single party politics-U.S.A. doesn't do that-so let's change that too. (although many would like it that way) so of course, there are lots of things that we do differently that these other countries, but they will change with enough international pressure, eventually-and in the meantime, we will have all of the advantages of a cleaner healthier continent for our peoples to live on. why wouldn't you want that? because it is going to make our businesses less profitable? c'mon dude. go back and spin a different tale. thanks. and......

WOW!

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