Goldman Sachs

  • 23 Oct 2012 at 5:48 PM

Greg Smith Shares Bloomberg Reporters’ Appreciation For Gary Cohn’s Grundle-To-Face Conversations

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As many of you know, here at Dealbreaker we consider ourselves the preeminent scholars on Goldman Sachs president Gary Cohn’s grundle. Specifically, the grundle-to-face conversations he reportedly enjoys having with employees on the trading floor. So we were more than a little delighted to hear that Greg Smith’s book, Why I Left Goldman Sachs, contained a passage describing Cohn’s preferred position to assume while havin’ a chat. Sayeth Smith:

Gary had a very distinctive signature move, one he had become famous for within the firm; I must have seen it ten or fifteen times in action. It didn’t matter if the person he was talking to was male or female; he would walk up to the salesman or saleswoman, hike up one leg, plant his foot on the person’s desk, his thigh close to the employee’s face, and ask how markets were doing. Gary was physically commanding, and the move could have been interpreted as a very primal, alpha-male gesture. I think he just thought it was comfortable.

Having pored through every piece of empirical evidence regarding GC’s G-T-F tendencies at least 500 times, one of our research assistants noticed that Greg’s prose sounded moderately familiar. Read more »

  • 23 Oct 2012 at 5:29 PM

Low Rates Squeeze Bank Profits To Record Highs

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I fell a little down the rabbit hole of this Journal article on “Low Rates Pummel Banks.” This has long been a mystery to me as there are two diametrically opposite narratives of banks and low rates in the world. In one, banks borrow for free from the Fed and reinvest at higher rates and print free money and spend it on parties where they beat up retirees. In the other, banks are, um, pummeled by low rates. Neither of those theories is absurd on its face, as you can tell from the Journal article:

Superlow U.S. interest rates are squeezing bank profits, complicating the industry’s nascent recovery from the financial crisis. … U.S. banks earned $114.39 billion last year, their best showing since 2006.1

Profits are squeezed, but to their best level since before the financial crisis, so.

The Journal’s thesis is basically that banks are getting screwed because net interest margin, specifically, is squeezed, as mortgage rates keep dropping, deposit rates are kind of floored and can’t drop any further, and other sources of revenue are drying up:

As higher-yielding loans and securities acquired before the crisis mature, the banks are forced to replace them with assets that carry much lower rates. With some sources of lucrative fee income such as debit card charges capped in 2010′s Dodd-Frank law, the margin squeeze has an outsize impact on the bottom line.

On the other hand, other other sources of revenue, like originating mortgages at record spreads to MBS rates, or just trading securities whose prices have been bolstered by declining rates, are still robust – but that business seems to be concentrated in big banks that also benefit from economies of scale. A Goldman equity research note yesterday came to the same place, noting that regional banks get ~58% of revenue from net interest while the big universal banks get only ~48% there:2 Read more »

  • 22 Oct 2012 at 4:22 PM

Timberwolf Continues To Stalk Goldman Sachs

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Financial product salespeople, if they know what’s good for them, should be thankful for car dealers. Not used car dealers, either, new car dealers: because of the world’s familiarity with their business model, if you sell a client a product at 100 and then tell them the next day that it’s worth 95, you have at least some outside shot at pacifying them by explaining, slowly and patronizingly, “it’s like buying a car: the price drops as soon as you drive it off the lot.”

I mean, that’s true of buying a toaster or a bunch of carrots, too, but nobody marks those to market, so. I guess people do mark their cars to market? That seems to be a thing. In any case, “mumble mumble mumble drive it off the lot” sounds much better than the alternative, which goes something like “yeah, we thought it was worth 95 but we sold it to you at 100, problem?”

Remember Timberwolf? Timberwolf was an RMBS CDO that Goldman Sachs marketed. It was also “one shitty deal,” in Tom Montag’s immortal words, and some of it was sold it to some Australians with the buzzword-salad name Basis Yield Alpha Fund (Master), and Tom Montag was right, so, that worked out poorly for Basis Yield Alpha Fund (Master). Working out poorly was a feature of a lot of Basis Yield Alpha Fund (Master) investments; before they bought Timberwolf they bought another MBS CDO called Point Pleasant, also from Goldman, and whereas a Timberwolf will of course rip your face off – that’s just evolution – the face-ripping they experienced from a Point Pleasant seems to have come as some surprise.1 Anyway, they sued, and while Goldman has engaged in marvelous jurisdictional kerfufflery that got it tossed from federal court, they are still in New York state court, which refused to toss it late last week.

Here, from the opinion refusing to toss the case, is Basis Yield Etc.’s core allegation: Read more »

  • 19 Oct 2012 at 1:47 PM

Goldman Sachs Is Over Greg Smith, Who They’d Like To Remind You Never Even Earned A Set of Steak Knives While At The Firm

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Goldman Sachs found no support for claims by Greg Smith, a former employee, that the firm has stopped putting clients first, said Edith Cooper, global head of human capital management. “As we looked into his claims I was very pleased to see there wasn’t merit,” Cooper, 51, said on Bloomberg Television’s “Market Makers” with Erik Schatzker and Stephanie Ruhle. [...] “Quite frankly, he got to a point where he was not comfortable being at Goldman Sachs. We have done everything we could to make sure his claims were not valid. I am confident in suggesting that we have not found anything substantive. Instead, we have moved on.” [...] Goldman Sachs says that Smith, before he resigned, was denied a promotion and a $1 million pay package he had sought. The firm also says that Smith was the lowest-paid among the vice presidents who started in the same training class, and that a third of those classmates had been promoted to managing director. [BloombergTV, Bloomberg]

  • 18 Oct 2012 at 7:54 PM

Area Man Recounts Brush With Greatness

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In this case, greatness being Lloyd Blankfein’s glistening, stark-naked body. Read more »

  • 18 Oct 2012 at 3:15 PM

Why I Left Goldman Sachs, Chapter Three: “My Alleged Competition”

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In the ping pong game of life, even your most trusted blade can’t swat away an opponent with super-sized balls.—Unknown

On Monday morning, Grand Central Publishing will release Why I Left Goldman Sachs: A Wall Street Story, a memoir penned by former Goldman employee Greg Smith, based on his op-ed for the New York Times entitled, “Why I Am Leaving Goldman Sachs.” When Smith’s piece came out last March, few if any senior executives inside the bank were pleased, in part because it came as a total shock. No one at Goldman had known Smith was planning to have his resignation letter printed in the paper. No one had known he had issues with the firm’s supposedly new and singular focus on making money at all costs. No one, at least at the top, even knew who Greg was. Obviously all this left the bank at a competitive disadvantage in terms of fighting back and for the time being, Smith appeared to be handing Goldman its ass. Getting cocky, even. Perhaps thinking to himself, “When all of this is over, I could be named the new CEO of Goldman Sachs.”  As anyone who has ever won a bronze medal in ping-pong at the Maccabiah Games will tell you, however, winners are determined by best of threes. And that anyone going to to the table with Goldman Sachs should be prepared for things to get ugly.

Which is why it should not have come as a surprise that after getting hydrated, regrouping, and coming up with a plan of attack, Goldman kicked off round two with a delightfully bitchy, exceptionally underminery comment to the press re: Smith’s tale being no more interesting than that of a disgruntled first-year analyst who thinks he’s got a story to tell and then followed it up with a leak of Greg’s less than flattering performance reviews to the Financial Times. What probably did come as a surprise, however, was today’s hilariously aggressive Bloomberg article re: Mr. Smith wherein:

* He’s described as a petulant child with unrealistic expectations for his career advancement

* It’s suggested, by saying outright, that his op-ed complaints about the firm were nothing more than him having “an axe to grind” on account of not advancing beyond vice-president, as demonstrated by the fact that as of 2010, he was happy with the firm, wanted to become a managing director and had no intention of leaving

* People are left to connect the dots re: Smith and lady bosses (“Goldman Sachs put a different managing director in charge of Smith as it considered giving him a sales job. The report says he ‘found the transition difficult’ and considered the female MD who ran the desk a peer at not his boss”)

Anyway, as we head into the final game of the set with a tie score, the following is a tremendous anecdote from Chapter 3 of Why I Left Goldman Sachs involving an actual game of ping-pong, John Whitehead’s Business Principles, and the lessons one learns as a first-year at GS about the importance of throwing a match to a client despite knowing full-well you could wipe the floor with him or her (and thinking you were sent to Boston to do just that), if you so chose.  Read more »

  • 16 Oct 2012 at 3:35 PM

Goldman Underperforms Expectations By Doing Only 25% Better Than Expected

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So how’d Harvey do? I found Goldman’s co-CFOed earnings call this morning a bit awkward but the awkwardness was a bit overwhelmed by IS LLOYD GETTING FIRED TOMORROW?? No, I’d guess?

You can look at Goldman’s results from a variety of distances. Up close, EPS estimates were $2.28 and actuals were $2.85 ($3.33 ex-DVA); $2.85 is more than $2.28 and there’s a dividend increase to boot so, yay there you go.

In the middle distance, you could have some concerns. Core, recurring revenue growth was so-so relative to peers, and costs were high, partly due to pleasing comp accruals, which I guess could concern you if you were a mean ungrateful shareholder and/or a former Goldman employee who for whatever reason is no longer accruing said accruals. Most of the outperformance came from appreciation on investing and lending positions.1

In the far distance, what do you make of it? The most awkward moment of the call for me was when the UBS analyst asked the CFO tag team to try to give him a sense of future Investing & Lending profits. You can’t do that! Investing & Lending is like the stochastic slush fund; revenues were $1.8bn this quarter versus $200 last quarter and ($2.5bn) this time last year. If you could predict those revenues you shouldn’t be a banking analyst. The tag team went like this, paraphrasing wildly: Read more »

Greg Smith: Goldman Sachs Interns Taught Harsh But Important Lessons By Demanding But Affable Managing Directors

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Lesson 1, according the first chapter of Why I Left Goldman Sachs (“I Don’t Know, But I’ll Find Out”): the difference between a sandwich and a salad. Read more »

  • 12 Oct 2012 at 4:59 PM

Fabulous Fab To Take The Stand Next Summer

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Three years after Fabrice Tourre was sued by the Securities and Exchange Commission for allegedly misleading investors, the (soon-to-be) Dr. of Economics and Love will go to trial, assuming finals don’t pose a conflict. Read more »

  • 11 Oct 2012 at 2:11 PM

Gary Cohn Will “Probably” Read Greg Smith’s Book

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But will he read select passages at Dealbreaker Dramatic Reading night? These are the questions that need answering. [Bloomberg TV]