14 December 2008

Goldman and Morgan Set to Hit the Street with Losses this Week

Since a significant portion of the anticipated losses will be coming from writedowns in commercial real estate the projected reports are probably difficult to make with accuracy. The Banks have a great deal of accounting discretion, and it is probably tied to their tax and public relations strategy among other things.

As you may recall, there was quite a fuss when it was reported that Goldman was setting aside $7 billion of its $10 billion in TARP money to be paid out in bonuses this month. To put it into perspective, those bonuses are about half of the money required to put some health into the US automotive sector.

Goldman and Morgan have been paying more attention to the outrage in the public and the Congress since then, but they are still on a heady Masters-of-the-Universe fast track.

UK Telegraph
Goldman faces $2bn loss – its first since 1929
By Simon Evans
Sunday, 14 December 2008

As the banking giant prepares to unveil shock figures, Morgan Stanley braces itself to add its own bad news

Goldman Sachs, the US investment bank, is this week expected to post its first loss since the Wall Street crash of 1929 when it unveils full-year results on Tuesday.

In the week when many Square Mile bank staff find out if they have scooped a bonus this year, Morgan Stanley is expected to complete a miserable Christmas picture when it also reports a loss, one day later.

Alex Potter, banking analyst at stockbroker Collins Stewart, said: "For these two remaining November year-end reporters, the past three months will have been pivotal to their year as well as to the 2009 outlook. This period encompassed the Lehman failure, as well as the nationalisations of Fannie Mae, Freddie Mac and AIG."

Analysts expect Goldman to say that it lost close to $2bn (£1.4bn) in the last quarter of 2008, compared to a $3.18bn profit during the same period last year.

Big losses are expected at the bank's proprietary property arm, Whitehall, which owns, among other investments, New York's Rockefeller Center. Sources suggest that Goldman will reveal writedowns of more than $2bn on the fund.

Big losses are also believed to have been recorded in its key principal investments portfolio, with some estimates suggesting they could come in as high as $3.5bn.

Goldman laid off 250 staff in Europe last week, the majority of the cuts coming at its London offices in Fleet Street, as part of a drive to slash the group's headcount by 10 per cent.

Morgan Stanley is expected to post only its second loss since it went public in 1986 – around $300m for the fourth quarter is forecast – although some estimates suggest that figure could be as high as $900m.

The ratings agency Standard and Poor's has estimated that Morgan Stanley owns $7.7bn of commercial real estate loan assets – none of which has been written down.

Morgan Stanley's numbers will come days after Bank of America's chief executive, Ken Lewis, revealed that the bank, which snapped up ailing rival Merrill Lynch earlier in the year, is looking to lay off as many as 35,000 jobs in the next three years. It is anticipated that the move will save as much as $7bn.