Honestly bank earnings week has been a little boring, no? It’s been quarters since anyone announced a six billion dollar trading loss, and the recent news is pretty much modest beats from a diverse mix of businesses and where is the fun in that I ask you. Financial-market memories are short and … have negative serial correlation, or something … which might explain why Goldman is down today despite announcing a $4.29 EPS vs. analysts’ $3.87, with strength in principal investments and debt underwriting making up for so-so FICC revenues.
The call: variations on boring. Goldman CFO Harvey Schwartz painted a picture of Goldman clients who are deterred from strategic activity by macro uncertainty – “oh we can’t do that merger, because, uh, Cyprus” – and so spend their time refinancing their loans every six months to get lower interest rates.1 I suppose their bankers have to make fees somehow. And there don’t seem to be many conclusions to draw from the numbers: FICC revenues are down because there is noise in FICC revenues, not due to any change in business mix or performance. VaR is down because market vols are down, not because of any change in risk appetite. Private equity gains in investing & lending reflect stronger public equity markets because private equity is just beta. I guess.
Nor is Harvey your go-to guy to fulminate about regulation, though these days really no one is. He said various nice things about how the regulators are working hard and getting it right, and how Goldman doesn’t act in anticipation of regulations but only responds to them when they’re final. Others have phrased this less charitably. Thus Goldman’s new BDC is not a preemptive effort to fit prop traders into the Volcker Rule, but just a client-driven part of Goldman’s asset management strategy – “deploying our competencies into opportunities we feel like our clients would benefit from.”
So what’s left? There’s comp, of course: comp accruals were 43% of revenue ($4.34bn), versus 44% in 1Q2012 ($4.38bn), and headcount is down 1%. Analysts tried to push Schwartz to extrapolate a trend there, but again he mostly resisted. Keep enough people to serve clients, etc. Read more »
Lloyd Blankfein is getting no help from on high with regard to a mortgage-backed securities class-action lawsuit. Read more »
The saddest part of this job is discovering a beautiful thing that someone has created as a way around financial regulation, and then watching philistine regulators destroy it. But the happiest part is dreaming up a come-on-that-could-never-work ploy to get around some financial regulation, and then finding out that someone’s actually doing it. Extra points if the someone is Goldman Sachs.
Two weeks ago I thought I’d concocted a way around the Volcker Rule’s porous and silly restrictions on banks running private equity funds. My solution involved (1) having a merchant banking business that took no outside investors (which the Volcker Rule does not restrict), (2) having a private equity fund that took no bank money (since the Volcker Rule limits banks to owning 3% of such funds), and (3) having your merchant bank and your private equity arm co-invest in deals. Since that doesn’t quite work,1 I later modified it a bit to have the outside investors co-invest directly, rather than through a private equity fund, and give the bank its management fee in the form of better economics to the merchant bank in each investment.
Today Reuters has this: Read more »
The past few years have not been the best of times, professionally speaking, for Lloyd Blankfein. As CEO of Goldman Sachs, the shit storm of the financial crisis landed on his head and with it, angry protesters, 75-100 pieces of hate mail each day, lawsuits, investigations, hearings before the Congressional brain trust, calls for him to be fired and/or jailed, the title of “Worst Person in the World,” executive MBA students who think they know how to run a bank better than he does, and half man/half horse semen aficionado Matt Taibbi.
While Lloyd is much loved within 200 West and among those who can’t resist the Lloyd Face, the hate from the outside has been difficult to take. Though he’s fully aware that “there’s a little bit of ‘for better or worse’” about a gig like his, and that “you can’t be the CEO without having to do what the CEOs have to do in distressed moments,” as Blankfein’s college roommate puts it, not having coveted “a public persona,” the “vilification makes him sad.” He’s not planning on leaving the firm any time soon but it’s clear LB needs a pick me up. Sitting down with New York recently for some real talk, he floated a few wants/wishes that, if you care at about him at all, should do your part to help grant. Read more »
Here, have a New Yorker cartoon for your troubles.
GS Gag Order [PDF]
Related: 1-2 Joins ‘Large’ In Welfare Line
This morning Wall Street was smirking over the possibility that an intern at Goldman Sachs had resorted to working as a stripper because her position at the firm was unpaid. Within Goldman, the possibility had launched speculation about exactly which intern might be the stripper. Outside of the firm, it was being treated as a delicious scandal.
But is there really a stripper working at Goldman?
Read more »
…And join Credit Suisse, where Brady Dougan promises to take full responsibility for his mistakes. At the marginally more successful, slightly less tax-evading Swiss bank in town, Callan will serve as Managing Director and head of its Global Hedge Fund Business, a position created specially for well-heeled woman. Callan’s new gig starts on September 2, which also happens to be someone‘s birthday, so hopefully she’ll be down for a joint celebration. Interestingly enough, when asked by Erin Burnett about the appointment, Jim Cramer chose to say nothing, which has never happened before. Make of that what you will.
Earlier: CFO Erin Callan, COO Joseph Gregory Out At Lehman Brothers
Corporate America has been perfecting ways of talking around awkward things like mass firings and layoffs. But it can’t lay a glove on Wall Street, where double-speak is not just a way of life, it’s an earnings strategy.
Take Goldman Sachs, Wall Street’s gold standard investment bank. Despite beating its peers in performance, profits are down at Goldman and layoffs are underway. Many of those who lose their jobs will be junior bankers, called analysts, who typically serve a two year term before going on to business school or moving on to other jobs.
Goldman is letting many of its first year analysts go but they aren’t describing this as getting fired. So first year analysts who are being fired after just one year are told that the have been placed into the “accelerated one-year analyst program,” according to people familiar with the matter. It’s like skipping a grade! Well, except that you get expelled from school after you get accelerated!
Goldman Sachs could not immediately comment on this story. But we’ll update you if they do!
As we pointed out the other day, a rift has developed on Wall Street over whether access to funds from the Federal Reserve is worth the price of increased regulation. Lehman Brothers is reportedly willing to accept the regulation while Goldman Sachs is said to oppose it, and is willing to give up access to the new Fed facility if necessary. Tim Carney, who writes for the Washington Examiner and is the brother of one of DealBreaker’s editors, takes a look at why the investment banks have split over the issue.
These companies’ financial situations give a hint. Goldman, in its most recent quarterly report, showed a positive gross profit, as it had for the years 2007 and 2006. Lehman, meanwhile, posted a $6.6 billion gross loss last quarter.
Goldman, like the whole financial sector, has plenty of headaches, but thanks in part to its correct bet on the housing slowdown and credit crunch, it is thriving compared with its competitors. Subsidized loans will help Goldman, but the weaker sisters in the industry need them more. Regulations may stabilize Goldman’s position, but they will keep Goldman from improving that position.
Deal or no deal? [Washington Examiner]
The $13.25 billion acquisition of Electronic Data Systems by Hewlett-Packard—the ninth largest tech deal ever, according to DealLogic—has moved the M&A league table standings, DealJournal Heidi Moore reports. Before the deal was announced, Goldman Sachs and Morgan Stanley led this year’s ranking from advising technology companies on mergers. But neither bank has a role in the H-P deal, pushing them down in the rankings
“Goldman ranked first with $14 billion of announced deals to its credit this year, and Morgan Stanley ranked second with $11 billion according to investment-banking research provider Dealogic,” Moore writes. “But now, Goldman is in third place, displaced by Lehman Brothers and J.P. Morgan. Lehman has jumped from fifth to first place with $17 billion of deals to its credit, while J.P. Morgan — which, just yesterday, languished in seventh place with only about $2.2 billion of tech deals to its credit — has vaulted to second place in the rankings from seventh place. Morgan Stanley has fallen to No. 5.”
Citigroup and Evercore Partners advised Electronic Data on the deal. J.P. Morgan Chase and Lehman Brothers advised Hewlett-Packard.
Hewlett-Packard: The Advisers [Deal Journal]
Other news media wait until the market closes before reporting on trader chatter and market rumors because they don’t think you are smart enough to handle the half-truths. We have more faith in our readers. So we bring it to you straight and without condescending censorship
Today the chatter is about Goldman Sachs. People say lots of things, but today they are saying that Goldman will announce a major stock buyback tonight after the market closes. They’re even putting a number on it: $8 billion. Of course, the people saying this are in no condition to know and last week they probably would have told you that Lehman Brothers would be worth $2 on Monday. (But a couple weeks before that they were right about Bear Stearns.) Make of it what you will.
A side note: it’s kind of nice to report on bullish rumors about an investment bank. When was the last this happened?
Goldman Sachs didn’t comment on this because they wouldn’t anyway so we didn’t call them.