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Goldman Strikes Gold Again
by Nomi Prins
Nomi Prins is author of It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals from Washington to Wall Street (Wiley, September, 2009). Before becoming a journalist, she worked on Wall Street as a managing director at Goldman Sachs, and running the international analytics group at Bear Stearns in London.
Mark Lennihan / AP Photo
This morning Goldman Sachs posted near-record trading profits and bonuses. But behind the giddy numbers, Nomi Prins argues, are signs that the bank hasn't learned any lessons from the downturn.
What a difference a year, a pile of federal capital, fewer competitors, and rebounding trading profits make. Coming on the heels of JPM Chase’s giddy profits Wednesday, Goldman Sachs’ third quarter earnings fell shy of the record set last quarter, but earnings per share handily beat analysts’ expectations of $4.24.
Third-quarter revenue was $12.4 billion, or $5.25 earnings per share, compared with $13.8 billion last quarter, and an increase of 105 percent over last year’s third quarter. Net profit was $3.19 billion, down from $3.4 billion last quarter.
Goldman will do well as long as trading on leverage does well, and as long as there remains no meaningful regulatory fallout from last year’s crisis.
Again, it was the Trading and Principal Investments Division driving the numbers, posting revenues of $10.03 billion, down from the record $10.8 billion last quarter. This included a decrease of 12% to $5.99 billion in the Fixed Income Currency and Commodities (FICC) area, the cornerstone of the firm’s trading businesses, shy of last quarter's record revenues of $6.8 billion, but up substantially over the $1.6 billion in the third quarter of 2008.
Goldman’s equity revenue was $2.78 billion, compared with $3.18 billion last quarter, and $1.6 billion during the third quarter of last year. Equity underwriting revenue was $363 million compared to $736 million last quarter, and $292 million last year. Debt underwriting was $211 compared to $336 million last quarter, and $383 million last year. Asset-management revenue rose to $974 from $922 million last quarter and $1.1 billion a year ago.
Profits and Bonuses
Where capital based trading profits go, stock prices and bonuses follow. So it comes as no surprise that Goldman’s compensation pool remains on track towards a new record of $22.2 billion (surpassing $20 billion in 2007 and $12 billion in 2008).
All this comes four months after Goldman repaid the $10 billion of TARP money it received during the height of the crisis last fall, along with $426 million in dividends. Though these gains were short of last quarter’s, they still indicate a return to the risk-taking model that has served Goldman so well in the past, with the exception of during the financial meltdown.
Going into last fall’s crisis, things weren’t so rosy. Goldman’s third quarter 2008 earnings (filed on September 16, 2008, a month earlier than this year) were already strained. Total revenue was $6.04 billion, and revenue from the firm’s Trading and Principal Investments area was $2.7 billion, 67% below 2007’s levels as credit problems were brewing. Residential and commercial mortgage losses were $825 million. Still, its stock price ended that quarter at $163.97 per share. It would sink to a low of $55.19 per share on November 19, 2008.
Things got worse, of course, in the fourth quarter of 2008. The firm reported a net loss of $2.12 billion. Trading and Principal Investments net revenues were a negative $4.4 billion, and the FICC division’s net revenues were negative $3.4 billion.
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TK798999
The writer of this article fails to mention that Goldman Sachs was THE top contributor to Obama's Presidential campaign. The ties are deep into the Obama administration.
Surprised?
We will never have a real representative democracy in this country until we get rid of the money in politics. Obama lied when he said he woud accept public campaign finance money. He didn't and he raised and spent more than 100 MILLION DOLLARS ON THE 2008 CAMPAIGN!!!!!!!!!!!!!!!!! (much of this money from Goldman Sachs and untraceable contributions from money cards with no names) When is anyone going to investigate and report on this outrage??????
Any shred of real journalism left died in the campaign debacle of 2008.
Embers
I support publicly funded elections. You're nuts if you think this is solely Obama's fault. But there is culpability all around.
whipmawhopma
TK798999 - You are incorrect. Every dollar has same vote as every other dollar. Unless you were talking about the voters, in which case, it's still the dollars that count, so you are correct.
MajorRevisions
Goldman Sachs did not contribute the money, it was the employees of Goldman Sachs. The law requires individuals to disclose their occupation and employer when they donate to federal political canidates. Actually University of California employees gave more to the Obama but they are a public employer.
sophia5
( " there's something ominous about the giddy trading figures. " )
In the words of Yogi Berra sounds like " deja vous all over again ? "
Is it true that just before the collapse leading to the Great Depression,
as people were still losing their jobs,
there was a huge spike in the Market ?
Sound Familiar ?
At that time wasn't there a huge disconnect
between Wall Street and Main Street ?
Sound Familiar ?
Are we ignoring history . . . are we doomed to repeat it ?
Or is it different this time around,
and why is the media, "journalists" if you will,
largely ignoring the precarious position of the Dollar ?
whipmawhopma
sophia5 - As George Bush said, this sucker is going down. Or something like that. I think his timing was off.
While the fat lady did sing during the Fall and Winter of 2008/2009, she's coming back for an encore performance as demanded by reality sometime soon, and then, just then, it might be worse. Or not as bad. Or stall the 'recovery' for a decade or so.
I really don't know beyond a really bad feeling in my gut and an inclination to buy euros.
MajorRevisions
Don't worry, the fundamentals of the economy are strong.
DakLak
It's just funny money. If they actually had to produce it physically they couldn't.
And funny money brought the world to the brink of a world depression.
When will they learn? We need regulation NOW!
dminnich
Hey everyone - let's sink this evil empire (The USA's RICO economy) once and for all by:
- Pulling all your money out of stocks and bonds
- stop paying your mortgage and debt
- don't spend except on necessities and stockpiles
Get about - oh 25-40 million with balls enough to do this in a coordinated manner, watch out.
octavio
--------------------------------------------------------------------------- ---------------
First ---> We need to pass the Public Health Care Bill as soon
as possible.This is the only way to lower medical
costs.Medical doctors and dentists do not need to be
making $ 250,000 per year or hospitals do not need
to overcharge ( steal money ) $ 250,000 for some
chemo/radiation therapy to an individual suffering with
cancer.We need to stop the crooks. Pass the Public
Health care Bill as soon as possible!.
Second ---> We need to stop the lobbysts from corrupting
our politicians otherwise we will keep going down
the drain.
Third ---> Reform our immigration system.We need to allow
honest,ethical medical doctors and dentists from
other countries to come to work in the USA.The
medical doctors and dentists that we have now
are a bunch of crooks,they are not honest and
it is a sure thing that they do not have medical
ethics!.
Four ----> We need to start prosecuting all the crooks and
criminals.Start by prosecuting Bush/Cheney for
lying,torturing,killing,stealing,abuse of power,
big time pollution,and for stealing the USA
presidency from Al Gore.
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dtt1971
Price controls are no way to lower medical cost. You will still pay. Instead of money it might be your life. Profit is the incentive to take risk. Risk is what leads to innovation and a higher quality of life. Price controls lead to shortages, it will be no different with health care as it is with any product.
Lobbyists are not the problem. A corrupt Federal Government that spends too much is the problem. If the Fed budget was half of what it is today, you would have half the lobbyists. You have to separate the politicians from the money before you can get the money out of politics. But as long as you can make a life-long career being a politician expect the money to stay in politics.
Why limit immigration to medical professionals? I think it is just as important to have engineers, taxi drivers, and construction workers. We should be trying to get more legal residents into this country. People don't like them because they feel the steal government services. Maybe it is the government services that are the problem?
If you are going to prosecute politicians for criminal behavior, you are opening a real can of worms. Illinois won't be able to be represented in Congress. If lying is a crime, Obama is right there with them. Start with his pledge to not use private funding for his presidential campaign. He went on to spend $100M in private funds to get elected. Pollution? Please, our environment is cleaner today than it has been in decades. It will continue to get better as long as we have economic growth. Look how many states Gore won. I don't think the election was stolen, it was lost.
neverlate
Wasn't it cheap money and hubris that got us into this mess to begin with? I'm a capitalist to the core, but this isn't capitalism.
whipmawhopma
neverlate - Damn it, we're in agreement again. I am capitalist (well regulated) to the core, and agree that what we're witnessing is something else. It has the form of capitalism, but it's not and nor is it a recent development, though it seems to be getting worse, either because it is, or because we're finally paying attention.
It's that thing that Glenn Beck seems to be on a quest to define, that is just out of grasp, which he senses but does not see, because the madness that allows him to visualize it is the same thing that makes him seem insane. Or something like that.
MajorRevisions
I think it is called gambling but that is regulated so they call it trading. The terminology seems to be the same-betting, hedging their bets. Regulation would be by the government I would assume, and the government is the problem according to former President Regean. For the last 30 years we've heard Republicans and Democrats sing the praise of less regulation and how the market will set us free. I agree that capitalism is the system I would prefer to live under but the government needs to play a roll in it. It's obvious that the greed and stupidity will take over if there is no oversight by the government.
GPatton
When are we going to start putting these thieves in jail where they belong? George Patton
neverlate
The problem is, that as despicable as they are, they are not doing anything illegal. I believe MajorRevisions is right, Wall Street is now a gambling casino funded by the government. They take poor people's money with the Lotto and give it to rich people through the Federal Reserve.
sonofloud
They learned how easy it is to buy the United States Congress and the Presidency.
Thank you.
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