Goldman has done exceptionally well compard to other investment banks through this credit crisis. However, many were predicting a stunning turn of fortune for the latest reporting period. And stunning it was as Goldman lost a mammoth $2.1 billion.
The NY Times says:
Goldman Sachs reported a $2.1 billion loss for its fourth quarter, its first quarterly loss since going public in 1999, as even the firm hailed for skillfully navigating the credit crunch proved unable to continue dodging the ongoing turmoil.
The loss, which amounts to $4.97 a share, was a reversal from the $7.01 a share Goldman earned at the same time last year.
It was also below the average forecast of a $3.73-per-share loss among Wall Street analysts, according to Reuters Estimates. But it was not as deep as the losses approaching $6 per share that some analysts had been predicting.
It may not be as dire as Citi, but $2.1 billion is a lot of money to lose in one quarter for any company. This loss reflects the underlying riskiness of the investment banking model which had become overly dependent on revenue from trading at the expense of corporate finance and advisory work.
As is now the norm, the pain was reflected most in Goldman’s trading unit. Goldman’s trading and principal investments unit — for years the source of its enviable profits — reported $4.4 billion in negative net revenue. One year ago, it reported $6.9 billion in revenue, buoyed by its trading in debt like residential and commercial mortgages and loans tied to leveraged buyouts. Now, debt trading has cost Goldman $3.4 billion in negative revenue for the fourth quarter.
If you recall, all money center financial outfits this past year have been socking away an increasing amount of their more difficult assets into the Level Three asset category, otherwise known as mark-to-make-believe. So, it does not engender confidence that Goldman is losing this much money at this stage in the credit crisis. While Goldman is known as an extremely well-run company — the best of the investment banks – I still find this earnings announcement worrying. As a result, Moody’s downgraded the firm.
So, bonuses will be down at Goldman. Average salaries are down 45% to…. only $363,654. Boo-hoo (fake tears). It’s tough on Wall Street.