Goldman Sachs is expected to report a near boom second quarter profit tonight, a prospect that helped send Wall Street higher and shook off a slowly developing fear that the economy and financial markets were not improving.
Goldman Sachs will be the first of four major banks to report this week (Bank of America, Citi and JPMorgan are the other) but filings with the US markets regulator have shown the grubby side of Goldman and the US banking industry.
While they were rescued from a financial disaster they played a major part in creating, American banks (and others in Europe and the UK) are now attempting to return to the good old days where they objected to tougher regulation and responsibility. Now that US, UK and European taxpayers have supported them through the crisis, the banks have decided its back to the days where risk was king and money was cheap; and it is, thanks to the trillions of dollars of support from central banks such as the Fed and the European Central Bank.
As we will see this week and next in the US, it will be all gain and no responsibility. If people thought Bernie Madoff was the king of the fantasist fraudsters, just look at what the giant banks of America and the US will be saying and arguing about re-regulation and profits in the next few weeks.
Goldman Sachs remains near the peak of the hypocrite banks. Goldman’s reputation was given a punching in Rolling Stone magazine last month and now comes a report in the Financial Times in the US and Europe revealing that Goldman executives “sold almost $US700 million worth of stock following the collapse of Lehman Brothers last September, according to filings with the Securities and Exchange Commission.”
“Most of the sales occurred during the period in which the investment bank enjoyed the support of $10bn from the troubled asset relief program. The surge in selling among Goldman partners, at a time when the US government had thrown a lifeline to Wall Street, is likely to draw criticism from lawmakers on Capitol Hill. Having survived the crisis.”
For the eight-month period for which figures are available, Goldman partners sold more than $691m in company stock, even as the firm expanded its public float from 395m to 503m shares in several capital raisings. The FT said that in the comparable period between September 2007 and April 2008, when the average share price was substantially higher, Goldman partners sold about $US438 million in stock.
The Government aid and a capital injection from Legendary investor, Warren Buffett helped steady the Goldman share price. It seems that was enough to allow more executives to bail out.
In addition to this, in the quarter ending last November, Goldman paid tax of just 1% as it washed hundreds of millions of dollars through low tax areas. It still reported a sharp drop in its profitability, but the tax sheltering helped ease the pain.
Then, after the Federal Treasury and the Federal Reserve helped save Goldman and its mates from collapse after Lehman fell over, they allowed it to buy a commercial bank, which qualified it for support from the bailout fund. Goldman grabbed this, but changed its balance date to December 31, and dropped the month of December 2008 from its reporting. It’ first quarter results this year revealed that it incurred heavy loses in December 2008 which have never been reported in a quarterly or annual report.
Goldman was an early agitator to rid itself of the so-called Tarp-bailout money from the Government and the restrictions on things like executive remuneration that went with it.
The FT said some of the share sales could have been driven by margin calls from lenders wanting the Goldman executives to repay loans, which were secured by the bank’s shares. That’s something that is still happening in Australia.
“But Goldman’s culture was severely tested last year. For the period during which executive sales were allowed, from September 17 to October 24, Goldman partners sold some $250m worth of stock.
“A bigger wave of selling occurred during the window between December 2008, after Goldman reported its first quarterly loss as a public company, and mid-February. In that two-month period, when Goldman’s share price sunk to near-historic lows, partners sold more than $280m worth of company stock.”
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