Controversial US banking behemoth Goldman Sachs shocked Wall Street with some impressive results last night: profits surged to $1.8bn in the first three months of 2009, around twice as much as analysts were expecting, boosting its share price again (it's now up about 50% this year). Goldman finished the previous quarter in the red for the first time in a decade, but as competitors like Lehman and Bear Stearns have disappeared from the market, it’s clearly been hoovering up new business. So much so, in fact, that it’s now planning to raise $5bn from a stock offering, to pay back the US Government’s bailout money. It seems the death of the Goldman model may have been greatly exaggerated…
Back in the boom years, Goldman appeared to be the ultimate money-making machine – and paid the bonuses to prove it (a couple of years ago its partners shared a bonus pot of $2bn, while even last year nearly 1,000 of its staff took home over $1m). But despite betting on the sub-prime mortgage market collapse, Goldman couldn’t escape the subsequent banking ordure – its share price plummeted last year as it sunk into the red, and it was eventually forced to accept a $10bn bailout from the US Federal Reserve and give up its status as an investment bank. This means curbs on executive pay, and tighter regulation.
However, its time in the doldrums seems to have been short-lived. Last quarter its star fixed income trading division saw revenues jump to $6.5bn, twice as much as last year – so although its investment banking, asset management and principal investment arms were well down on 2008, in line with most of the industry, it still managed to turn a profit of $1.8bn. And by coming in so far ahead of expectations, it should now be able to shift $5bn of new stock – which it can use to pay down its Fed loan and get the Government monkey off its impeccably-suited back. Wall Street is breathless with admiration, and banking shares have soared around the world.
But it’s not such good news for the rest of US banking’s top brass, who will be groaning at the extra pressure this places on their results. Goldman CEO Lloyd Blankfein isn’t popular either, after taking a pot-shot at Wall Street last week for dodgy accounting practices and excessive compensation (a bit rich from someone who personally pocketed nearly $70m in 2007). And it’s also feeling the heat from the public, some of whom see it as the embodiment of all that’s wrong with Wall Street - and are suspicious that it's been able to recover so quickly after the taxpayer bailout. One US blogger has even started goldmansachs666.com (which includes statements like: ‘I believe this company is evil and should not exist’) – the notoriously prickly Goldman is now suing him for trademark infringement and (bizarrely) unfair competition.
Still, if Goldman’s making this much money, perhaps it can afford not to worry about being unpopular...
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