Now raising intellectual capital

Could Goldman pinch CIT?

It appears the federal government is on the verge of walking away from CIT Group and the same can be said for Goldman Sachs–even though the investment firm is one of the mid-market lender’s biggest bankers.

On Monday, I suggested that Goldman CEO Lloyd Blankfein could turn around the public’s nasty impression of his Wall Street firm by stepping in an buying-out CIT. But I didn’t really expect it to happen. Then yesterday there was a rumor floating around that Goldman, with the tacit support of the Obama administration, was trying to put together a private-sector bailout package for CIT.

That rumor, however, proved to be idle hedge fund specuation. It doesn’t appear Goldman, which says it has no material exposure to CIT, will be part of the CIT solution. Goldman says it has sufficient collateral from CIT and from unspecificed hedges, to minimize any of the risk it may have on a $3 billion secured line of credit.

But it appears Goldman may have a good reason to stand pat and let CIT sink or slowly drown. A hedge fund source just reminded me that last October–just as the financial world was melting down–Goldman announced it had closed a $10.5 billion fund to make “senior secured loans” to companies.  This is how GS Loan Partners describes itself on a Goldman website:

Goldman rules are not for small lenders

Goldman Sachs’ second-quarter earnings, as jawdropping as the numbers were, did come with a few warning signs of trouble ahead. Most notably, the $1.2 billion in losses and write-downs the investment bank absorbed on commercial real estate loans, securities and related investments may be a harbinger of bad news to come from other financial firms.

Now it’s easy for a firm like Goldman, which generated blowout gains from trading stocks, bonds, currencies and commodities, to sweep its commercial real estate losses under the rug. But that’s not possible for small regional lenders stuck with loans to operators of half-empty strip-malls or quarter-filled offices.

In monopolies we love

The market is soaring today largely because chip-maker Intel reported better than expected earnings and Goldman Sachs bested even the most optimistic earnings predictions. But is it any shock that these two defacto monopolies would produce outsized earnings.

Even in a crummy economic environment, companies that dominate their sectors can do well. And that appears to be the case with Intel and Goldman. Of course, Goldman is getting a big hand from Uncle Sam. But that’s the subject of another blog post.

Tax Goldman

Goldman Sachs is entitled to make as much money as it wants from proprietary trading–that is trading stocks, bonds, currencies and bonds for its own account. But as long as Goldman benefits from bonds it sold with a government guarantee, it should pay an extra tax on those prop trading gains.

The Wall Street Journal editorial today proposed a tax along this lines and I think it’s a good idea. It’s not often I find myself in agreement with the WSJ editorial page, but the paper’s edit writers are right in calling for an “FDIC bailout tax.”

Who pays on Goldman’s CIT hedges

Goldman Sachs keeps saying it has no exposure is CIT Group were to go bust, even though it has a $3 billion line of credit to the ailing mid-market lender.

David Viniar, the investment bank’s CFO, reitereated that mantra today during a conference call with analysts, saying Goldman has sufficient collateral and hedges to render any losses on CIT immaterial. Of course, that’s what Goldman said about its exposure to American International Group, even after taking $13 billion from the Fed to retire some CDOs that AIG had written credit defaults swap on.

from Rolfe Winkler:

Goldman cuts leverage + CreditSights commentary

As predicted, Goldman reported blow-out earnings.  The market had been expecting as much, which is why the stock has been flat today.

The good news is that Goldman's leverage fell again this quarter.  Total tangible assets were $885 billion; tangible common equity was $50.9 billion.  That implies leverage of 17x, or a TCE ratio of 6%.

Moving Goldman

So the big news to come out Goldman Sachs’ conference call is that it will start to move into its new building in the fourth quarter. And that means higher short-term occupancy costs as it will temporarily be located in two buildings.

Any suggestions on a moving firm?

I think they should go with Two Men and Truck.

Goldman Sachs earnings call

Goldman Sachs had a blowout second quarter, exceeding high expectations on its strong trading gains.

At a time when much of the financial industry is still struggling with the legacies of debt and leverage, the success of Goldman is riveting.  Yet as Matthew Goldstein has written, exactly how Goldman makes its huge gains remains largely a mystery.   Maybe, just maybe, some light will be shed when the firm holds a conference call on the results at 11 a.m. today.  Reuters columnists will be live blogging the call here.

Bank of Goldman

Lloyd Blankfein, chief executive officer of Goldman Sachs and banker-in-chief of the US/world, didn’t disappoint as his investment firm once again proved that it’s second to none on Wall Street when it comes to printing money and profits.

By now you know the headline news that Goldman generated blowout second-quarter earnings on record net revenues of $13.8 billion. Net revenues from trading and principal investments were $10.78 billion, up 93% from the year ago period.

You’ve come a long way baby


Though Goldman likes to downplay its own vulnerability during the financial meltdown last fall, its CDS levels provided by CMA DataVision paint a different picture. They also show just how far the company has come since the government pledged to support the big Wall Street banks through TARP and the FDIC bank debt guarantee program.

Tuesday’s earnings, especially its record FICC net revenues, show that the bank is standing firmly on its two feet, but let’s not forget how it got there.