The Great Debate UK
In late 2006, Goldman shrewdly began backing away from the residential mortgage market. With little fanfare, the firm began aggressively hedging its exposure to home loans, in particular mortgages to borrowers with shaky credit histories.
This savvy and somewhat stealthy strategy enabled Goldman to pawn off lots of its soon-to-be toxic mortgages and mortgage-backed securities on other institutions -- forcing those foolhardy speculators to pay the price when the subprime market blew up.
And much to everyone else's chagrin, Goldman even made money off the housing meltdown when some of its hedges -- specifically a bet that a subprime mortgage index would plunge -- paid off handsomely.
It appears Goldman is following a similar script with U.S. commercial real estate, the next big asset class that many believe is on the verge of disaster.
Goldman Sachs CEO Lloyd Blankfein has an image problem on his hands.
The most ardent critics of his firm are likening it to a blood-sucking vampire, while others simply see the Wall Street investment bank as a greedy and ruthless financial titan. But there is a way for Blankfein to start turning public opinion around, and that involves a quick buyout of ailing mid-market lender CIT Group, which provides financing to some retailers, manufacturers and aviation operators.
While a collapse of New York-based CIT would not pose the kind of systemic risk that last September's bankruptcy of Lehman Brothers did, the lender's sudden disappearance from the market would make it even more difficult for some small- and mid-sized American companies to finance their operations.
from The Great Debate:
Did someone try to steal Goldman Sachs' secret sauce?
While most in the United States were celebrating the Fourth of July holiday, a Russian immigrant living in New Jersey was being held on federal charges of stealing secret computer trading codes from a major New York-based financial institution.
Authorities did not identify the firm, but sources say the institution is none other than Goldman Sachs .
LONDON, April 23 (Reuters) – Swiss banking is not dead after all. Just a week after UBS admitted that it would lose 2 billion Swiss francs ($1.71 billion) in the first quarter, its smaller rival Credit Suisse unveils a profit of the same magnitude.
UBS’s entanglements with the Feds suggested Swiss banks, with their confidentiality, fancy products and high fees, were done for. But CS has shown that there is life in the old dog yet.
Some of the outperformance was illusory, as so often the case with investment banks. CS took a 365 million franc gain thanks to the further deterioration in value of its own debt. And there was a further benefit of an estimated 1.3 billion francs thanks to the “market rebound”.
However, the underlying performance was still much better than anyone had expected. CS has won share across many businesses thanks to the forced exit of much of the competition.
In the core private banking division, CS enjoyed a net inflow of 11.4 billion francs. Wealthy Americans seem to recognise that an Obama administration will not turn a blind eye to tax evasion or even avoidance: the U.S. is not high on the source list of funds. UBS clients withdrew 23 billion francs over the same period, so there has been a net loss to the Swiss system, even if not as severe as feared a week ago.
It appears that the rich around the world still value the “geographical diversification” (perhaps political too) and confidentiality that Swiss banks try to offer. Indeed, CS is on a hiring spree in Asia at a time when HSBC, Citigroup, Societe Generale and Barclays have all been shedding private bankers.
Like Goldman Sachs, CS also benefited from more trading and a bigger market share across a range of investment banking markets. CS shone in interest rates, American residential mortgage-backed securities and investment-grade underwriting, among others.
This result looks even more impressive when you consider that it comes at a time when CS has shrunk its balance sheet and also cut the amount of risk it is taking. Quarterly revenues more than tripled against the same period in 2008. However, investors should not read too much into this result. Trading volumes arising from the “market rebound” will surely tumble as some semblance of normality returns.
Moreover, there are signs that the world’s wealthy have learned some hard lessons from the crisis. Customers of investment banks everywhere now know that they were sold complex products simply to generate high fees for the banks.
CS revealed that clients had shifted out of securities into cash. Moreover, within their securities portfolios, its rich customers had reduced their holdings of “managed investment products”. Their holdings of structured derivatives products are languishing at half their peak levels and are unlikely to rise.
All of this translates into lower recurring commissions and fees. CS has responded with “more transparent, liquid and efficient solutions” — probably code for higher management fees. Making these stick if the products and pricing really are transparent may however be as tough a sell as a CDO these days.
from The Great Debate:
Goldman Sachs wants to do its duty by the American people and give them their TARP money back. Some spoilsports have urged the government simply to say no because allowing the investment bank to repay the cash would make other banks look bad.
But this seems rather un-American. Why shouldn't taxpayers get their money back if Goldman really doesn't need it? The point to insist upon is that they get all of it back -- and on commercial terms.
from The Great Debate:
(Republished to clarify time period of data in fifth paragraph)
Patriotism, as Dr Johnson once observed, is the last refuge of a scoundrel. So when you hear words like "duty" drip from the lips of a senior executive at Goldman Sachs, you instinctively count the spoons.
You'd be right to do so too. Chief financial officer David Viniar's observation that Goldman has a duty to repay the money it received last autumn from the U.S. government as part of the Troubled Asset Relief Program may be marginally less cynical than the apercu flung out recently by his boss, Lloyd Blankfein, that investment bankers should be paid less and shouldn't be rewarded for failure.
from The Great Debate:
Goldman Sachs Group Inc may succeed in its bid to pay back U.S. taxpayer money with the help of a $5 billion common share sale, but it may still not get the freedom it wants from intense public scrutiny.
Goldman, which posted a better-than-expected first-quarter profit and announced the public offering on Monday, has navigated the global financial crisis better than many of its rivals.