14 April 2009

Goldman Sachs Buries Losses to Beat the Estimates

That canny crew at Goldman Sachs does it again.

Last night in a surprise move Goldman announced their earnings early, showing a surprising profit of $1.8 billion, beating the Street estimate handily. The bulk of their profit purportedly came from speculative trading for their own accounts, using 'cheap FDIC guaranteed funds.'

Goldman also took the opportunity to announce a new stock issue designed to allow shareholders to help them pay back their government TARP funds. Since Goldman is putting aside 50% of its profits for employee bonuses even now, while they are still holding government subsidies, the reasons for this are obvious.

What was not reported last night is that Goldman had changed their reporting periods to begin the 1st quarter in January 2009 when they declared themselves to be a bank holding company. Prior to that, their fiscal 2008 year ended on November 30.

This made the month of December 2008 an 'orphan month' that was ignored in the financial headlines.

Goldman took this opportunity to realize some hefty writedowns in that December one month report, to the tune of approximately $1.3 Billion in pre-tax losses.

So, to earn an impressive $1.8 Billion in the first quarter, Goldman disposed of their losses in a largely ignored December filing. This facilitated their share offering with the 'wonderful earnings news' which Matt Miller of Bloomberg referred to approximately every five minutes as "blowing away their numbers."

However, this morning, Matt did mumble something about Goldman "maybe not blowing away their numbers."

Goldman did nothing illegal in their management of their earnings, both in the way in which they parsed the losses into a 'stub month' which was ignored, or in their decision to time an early announcement of 'exceptional profits' with a stock offering. But the financial press handled this badly, and considering the huge debt and forebearance Goldman owes to the government and the public it was not befitting a major institution with strong ties to the Obama administration.

The only thing getting blown away around here are the shareholders, taxpayers, and anyone else who buys what Wall Street in general is selling these days.

The banks must be restrained and the financial system reformed before we can have a genuine economic recovery.