After 12 years of outstanding service, Lucas van Praag, global head of Corporate Communications, will retire from the firm at the end of March. We are pleased that Lucas will continue to provide strategic advice as a consultant to Goldman Sachs…Lucas has played a critical role in helping the firm navigate through one of the most difficult and testing environments the firm has faced, particularly during the recent financial crisis and its aftermath. His strategic counsel and deep understanding of complex issues defined his career at the firm as did his warmth, natural inclusiveness and determination in the face of relentless demands. The countless hours he spent with external constituencies was matched by the time and attention he committed to all of us, explaining and engaging on important issues and trends. Lucas was a tireless advocate and we are pleased that we will continue to benefit from his judgment and experience. Please join us in thanking Lucas for his extraordinary contributions to the firm and wishing him, Miranda and their family the best in the future. [Deal Journal, earlier]
Goldman Sachs
One thing about Facebook is that Facebook doesn’t need the money that Facebook is raising in the Facebook IPO that Facebook just filed. (Did you hear?) It’s got almost $4bn in the bank and it can’t even be bothered to pretend that it’s got any plans for what to do with more:
The principal purposes of our initial public offering are to create a public market for our Class A common stock and thereby enable future access to the public equity markets by us and our employees, obtain additional capital, and facilitate an orderly distribution of shares for the selling stockholders. We intend to use the net proceeds to us from our initial public offering for working capital and other general corporate purposes; however, we do not currently have any specific uses of the net proceeds planned.
And while the selling shareholders undoubtedly will be happy to be able to sell in the open market, they can kind of do that now, with robust SharesPost and SecondMarket trading at high-eleven-figure valuations. Basically Facebook is IPOing because it’s got so many shareholders that it is legally required to register so might as well raise a few yards of rainy-day money while it’s at it.
When that’s your posture – and, to be fair, when people are beating down your door to buy your stock – you can be pretty, pretty cavalier with shareholder rights. What that means here is a two-class share structure (insiders get 10 votes per share, the public gets 1 vote), a board of directors that is not required to be independent, and Mark Zuckerberg controlling 57% of the voting power of the shares (while only owning 28%) via really quite all-encompassing voting agreements with current investors, some of which last until he dies. If your theory of public corporations is “they should be controlled by and for the benefit of the public shareholders,” this may trouble you. If your theory is “I’d follow Mark Zuckerberg anywhere,” then, carry on.
Other things to know or avoid knowing: Continue reading »
Earlier today, some fairly distressing news came out of Goldman Sachs– according to three different people “familiar with the matter,” the bank “may” hire Richard “Jake” Siewert Jr. for “a role similar to the one held by Lucas van Praag.” While we’d love to plug our ears and pretend this isn’t happening, the reality is that it was clearly leaked from the inside and is happening indeed. Though it’s possible Goldman would allow Lucas to hang around the office a bit longer, our beloved spokesman has got a lot more pride than that. If his unique flavor isn’t appreciated, if telling reporters that their stories are “extraordinarily ill-informed,” “nonsense,” “stupid,” indicative of a failure “to comprehend the subject matter,” and/or reminiscent of “effluent” is all of a sudden not okay, if they want to take a more collaborative (read: limp-wristed) approach with the press, then let them. Van Praag’s got better things to do with his time. Continue reading »
A few junior mistmaker numbers. Continue reading »
It could have been worse? Continue reading »
How Is The Whole “Don’t Risk All Your Money Trading For Your Own Account” Thing Working Out For US Investment Banks?
By Matt LevineAll the big banks have reported earnings so let’s take a little stock of things, shall we? A thing I did midyear was look at the ratio of trading net revenues to VaR for GS and MS, to prove that MS was winning the trading or something. Let’s expand that a bit. The result is, I think, an interesting chart:
The interpretation you could put on this is “this is how much money GS/MS/JPM/BAC made on an average trading day for every dollar of capital that they said they had at risk on that day.” Technically, this is is a graph, quarterly from 1Q2006, of [Trading Net Revenue / (Average Daily VaR * Trading Days in Quarter)], for four banks. Go read caveats here.*
This is obviously a toy chart, and too aggregated/undersampled to tell you all you might want to know, but still kind of fun. Continue reading »
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Banks
David Viniar’s Anti-Regulator Message On The Goldman Sachs Earnings Call Is Much Subtler Than That Of Some People He Could Name
By Matt Levine
Like I mentioned earlier, the David Viniar show this morning is a good time in its (relatively) quiet way. If, like me, you’ve drunk the GS we-understand-risk Kool-Aid, you’ll particularly enjoy Viniar’s take on capital requirements, which is – and I say this as a compliment – pretty cynical. Now, one thing that you might have in your arsenal of thoughts about bank capital is something along the lines of “capital requirements are a way of forcing bank managers to confront the risks of their positions and fund those positions in a loss-absorbing way to protect their creditors and the financial system more broadly.” Your faith in that position should I think be a little shaken by some of the Viniar Q&A. For instance:
Roger A. Freeman – Barclays Capital: [H]ow are you charging the desks for capital at this point? Is it on a Basel I basis or Basel III or some combination?
David A. Viniar: … As far as how we’re charging the desks, that’s a little bit of a complicated question. And we’re working through that now, and it — there’s no one-size-fits-all yet. And we have to be careful. As you know, Basel III does not kick in for quite a while, and quite a bit of what we do is very short dated. And so we don’t want to charge desks on a Basel III basis, have them turn down profitable opportunities that would be long gone from our balance sheet long before Basel III ever kicks in. So we’re really taking into consideration the tenor of what we do and trying to figure out what capital regime we’re going to be under. And it’s still — I would say, we’re going through a transition process here.
On the one hand, totally unsurprising and unobjectionable. On the other hand note the pragmatism: if and when our regulators are going to charge us for capital under the (generally higher) Basel III rules, we will charge desks for capital based on those rules. If not, not. The rules are the rules and the transition to new rules will be made in accordance with the rules. Only. If you thought “well, Basel III will improve the health and safety of banks by steering them away from the riskiest worst scariest products” – guess what, Goldman disagrees. They’ll manage capital to whatever regime is in place, as a matter of complying with regulation, but the capital rules appear to have no effect whatsoever on how they actually think about the risks of their assets, trades and businesses.
Are they wrong? Continue reading »
I know I’ve said that the Jamie & Doug in the Morning Show is the best call-in program in finance, given Jamie Dimon’s reliably amusing anti-regulation rant, but the true connoisseur should also really get a kick out of David Viniar’s calmer, wonkier, more NPR-appropriate chat. I certainly do. We’ll maybe have more to say about it later.
My enjoyment is, however, complicated by the fact that at this time of year I feel certain feelings. Specifically, feelings about Goldman Sachs comp, which will be terrible, horrible, down 115%, whatever, and yet … still … somehow … I want it. Have we talked about this before? Sometimes I miss investment banking. A thing that some people not in the industry don’t know about investment banking is that it is an awesome job, in the specific sense that many people would do it for free, or even pay money to do it, and in the even more specific sense that sometimes they do. (For, um, fairly loose definitions of “pay money.”) This happened twice during my time at Goldman. Let’s all luxuriate in a chart:
Continue reading »
Goldman Sachs said profit dropped 58 percent, beating analysts’ estimates as the company cut compensation in response to falling revenue. Fourth-quarter net income dropped to $1.01 billion, or $1.84 a share, from $2.39 billion, or $3.79, in the same period a year earlier, the New York-based company said today in a statement. Per-share earnings exceeded the $1.23 average estimate of 26 analysts surveyed by Bloomberg, whose predictions ranged from 70 cents to $2.50. “There seems to be continued emphasis on cost control and compensation control and that’s a good thing,” said Charles Bobrinskoy, the Chicago-based vice chairman and director of research at Ariel Investments. [Bloomberg, earlier]
In for a penny, in for a pound on the sacrilege front, so let’s talk metaphysics for a minute. Last night a reader who knows more than us about Islamic finance sent us a thoughtful email about the somewhat broken Goldman Sachs sukuk deal, saying in part:
The Shari’ah scholars listed in the base prospectus were described as “expected” to rule on the Shari’ah-compliance of the sukuk, so GS has an out. However, there is a big caveat here that makes it more problematic than it first appears. In Islamic finance, particularly in sukuk issued by Western financial institutions, the “nameworthiness” of the scholars on the board is viewed as important for selling the sukuk. While there are a few hundred scholars qualified to rule on the Shari’ah-compliance of financial instruments, there are about 10 that are internationally recognized and who are the most high profile. Goldman listed almost all of them …. There are a few exceptions, but when I first read the Prospectus, I thought they had just gone overboard with the number of top-name scholars. …. Goldman was basically name dropping as many top scholars to gain credibility but, they were found out.
Again, oops. And strange and amusing. But it also helped me clarify why I find the whole situation so interesting. That description is, with a few small differences of detail, exactly how you’d go build a financial product that is novel under U.S. tax or securities or whatever law. You’d have some people at a bank cook up a thing, and then you’d go call some lawyers to bless it. The more aggressive and high profile your thing is, the more important it would be to get (1) a whole bunch of (2) very prominent high profile lawyers to sign off on it.
When I worked designing financial products, I knew the informal list of outside lawyers who could sign off on the tax treatment or securities law approach or whatever of a novel structure. These were short lists, and something seriously borderline required multiple signoffs. This wasn’t, like, required by law or anything. I doubt it was even a written internal policy. It was just what everyone expected. There are some differences – there is a written policy, promulgated by an Islamic finance trade group, requiring three certifiable signoffs; and in US products you wouldn’t advertise all the lawyers who gave you informal opinions though you do advertise named advisors and some tax opinions in the prospectus. But basically the practices, of going to a smallish group of widely recognized independent experts and asking them to more or less formally sign off on the permissibility of what you’re up to, are very similar.
But the epistemology behind those practices differs in a maybe interesting way. Continue reading »
So, yeah, juvenile of me, but it’s just a little hard to keep an entirely straight face about the fact that Goldman Sachs is the first U.S. bank to venture into the world of Islamic finance. And it’s not going so hot:
Goldman Sachs’ controversial $2 billion Islamic bond programme faced a fresh challenge on Wednesday as it emerged that at least two scholars named as potential approvers had not even seen the prospectus.
Asim Khan, an adviser to Goldman on the issue which needs approval from sharia scholars to proceed, confirmed media reports that three of the eight scholars listed as potential approvers had not responded to requests to endorse the issue, but he said their lack of co-operation had no bearing on its sharia credentials.
Oops!
I went and found the prospectus and it’s fascinating for someone, like me, whose understanding of Islamic finance basically comes from Wikipedia. Now, even I know that the basic idea of a sukuk is to replicate a fixed income, or let’s say not-quite-common-equity-anyway, financial instrument without the use of “interest,” because interest is forbidden under Shari’a law. This, actually, is a topic close to my heart, because it turns out that in regular old American law sometimes “interest” is also forbidden, and by “forbidden” I mean “taxed,” which means that people who do what I used to do have certain incentives to turn things that look like taxable interest into things that look like non-taxable equity returns and vice versa. One thing you learn in that line of work is that it’s in large part the business of defeating substance with form: you pay for the use of money over time, but fall into some category of “paying for money over time” that isn’t what that is normally called, viz. “interest.” There are ways to do that in American tax law (one is called “option premium,” true story), and there are apparently ways to do it under Islamic law (one is called “murabaha,” which is what GS is aiming at here, and it’s basically the equivalent of “getting paid a fee for brokering a commodity transaction with forward settlement”).
It’s unclear if Goldman achieved that here. Continue reading »
