Goldman Sachs Earns $3.44B In Q2 Profits, Exceeding Expectations

NEW YORK — Goldman Sachs is emerging as the king of post-meltdown Wall Street.

Already the nation's most powerful financial company before the credit crisis, the bank profited handsomely from Wall Street's rally and the recovering credit markets during the second quarter and distanced itself from the few competitors still standing.

The result was a stunning profit of $2.7 billion – even as the bank repaid $10 billion in federal bailout money. The total blew past what Wall Street analysts were expecting.

Goldman pulled off a remarkably speedy recovery from last fall, when it lost $3.3 billion in four months during the worst of the financial crisis. And it had its best quarter since the end of 2007, when the recession was just beginning.

The results also confirm that despite controversy over everything from its role in the meltdown and the bonuses it pays executives and even the power of its alumni who sit at the highest levels of government, one thing remains constant: Goldman knows how to make money better than anybody else on Wall Street.

While other firms have curtailed risk and preserved cash to protect against further losses, Goldman has returned to what made it so profitable in the past – high-risk trading and investing in everything from mortgages to commodities and underwriting of stock and debt offers.

"Goldman really is in a class by themselves," said Phillip Silitschanu, a senior analyst with Aite Group. "They've always been the golden child of the market."

Of course, Goldman also benefited because there are fewer competitors on Wall Street following the demise of Bear Stearns Cos. and Lehman Brothers Holdings Inc. in 2008. Both companies were felled by their investments in risky, and ultimately failed, mortgage-backed securities.

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And in a sign that the mood in Washington may be shifting, there was little outrage directed at Goldman from officials who have criticized the firm in recent months. Goldman took the bailout cash under pressure from the government at a time when faith in its financial institutions was shaken to its core.

While Goldman is making money in its core businesses, it's also gotten some hard cash into its corporate treasury that has also strengthened the company. Warren Buffett made a well-publicized investment of $5 billion in the bank in September. Goldman also benefited from the government's bailout money to insurer American International Group Inc., which paid Goldman $12.9 billion during the first quarter. AIG was forced by contracts it had signed to compensate banks like Goldman for losses they suffered from complex mortgage investments.

On Tuesday, President Barack Obama's press secretary was reluctant to discuss Goldman's results.

"I'm generally hesitant – as I think the Treasury Department is – to comment on individual earnings reports," Robert Gibbs, the president's press secretary, said during a meeting with reporters aboard Air Force One.

Goldman is the first bank to report second-quarter earnings. JP Morgan Chase, Citigroup and Bank of America will follow this week.

By repaying the bailout money, Goldman freed itself of government-imposed restrictions on executive pay and bonuses that some of its rivals, including Citigroup and Bank of America, are still under. Goldman spent $6.6 billion in the quarter on pay and benefits, 41 percent more than in the first quarter. Year to date, the company has paid out $11.36 billion in compensation.

Goldman's peers have been stung by bigger loan losses because of their focus on retail banking and because they dealt more in the risky mortgage-backed securities that drained hundreds of billions of dollars from other firms.

Wall Street staged a huge rally in the second quarter, and Goldman took advantage of a recovery in the credit markets. With its own balance sheet intact, Goldman was ready to help other companies looking for an underwriter.

"When times are bad, the thinking goes, go with the best of the best," Silitschanu said.

Another reason business will probably keep coming Goldman's way: The demise of competitors like Bear Stearns and Lehman Brothers means investors simply have fewer places to take their money.

Goldman earned $4.93 per share for the quarter after paying preferred dividends. Analysts polled by Thomson Reuters, on average, expected $3.54.

Goldman shares rose 22 cents to close at $149.66 on the New York Stock Exchange. The stock was trading close to $50 during the financial crisis last fall.

The muted reaction from investors wasn't a negative sign. They had bid up Goldman, and the rest of the stock market, Monday after respected analyst Meredith Whitney issued a bullish report on the bank.

Comments

[vippy]

Yes, in 2008 when the rich saw the problem coming, they all took their money out of the bank and the FED had to step in and divert the crisis. Please, tell me again, how the rich make this country great.
They almost made the USA collapse. The FED had to step in and save us.

[vippy]

Okay, someone please explain to me how they made record profits when the economy is in shambles? If we know the answer to this, then we know how divert another disaster.

[luccas]

(cont from above)

Do you draw the line at debt evading practices, or do you draw the line at failure to contain "toxic assets?" Do you draw the line at requiring large firms to continue to pay out dividends during a crisis, or do you draw the line at a former Goldman Sachs CEO turning large banks into multiple, pass through operations? Do you draw the line at making changes in accounting or do you draw the line at pumping up share price so to sell the shares (called re-capitalizing), after making adjustments in accounting? Do you draw the line at pump and dump schemes like making changes in accounting so firms can rally on that change and sell shares to get more money, or do you draw the line at corrupt methods for acquiring capital, when no foreign nation will invest in your financial firms? Do you draw the line at improving your trade platform and paying the computer programmers a premium, or do you draw the line at giving the bill for that upgrade to the Treasury and American people, while keeping the secrets internally, as a "threat to national security?"

LoL America's buddy? Goldman Sachs a leader of the most corrupt people America has ever known. They are the worst amungst the NY elite. They serve no country. They have no honor. They love no nation. And they have no leadership skill. If they did, they would have been ..

(cont)

[luccas]

(cont from above)
...If they did, they would have been the first to stand up in defense of capitalism and capitalist rules of law; especially during an economic emergency. Good leadership does not abandon capitalist rule of law, just because an emergency arises. But GS executives were among the first to go silent about the rule of law, when it came time for them to unload their debt on people who did not sign for those debts. They have been silent about capitalism since that time.

Please do not make the mistake that these people are friendly to our national security.

Who else would call anything toxic an "asset," perhaps terrorists of the United States, or maybe the former CEO of GS, Henry Paulson, maybe a fed chairman who likes to keep 2 trillion in off balance sheet transactions? Same thing? Or maybe you will debate that too and suppose they are our friends and not enemies acting dishonorably to evade their debt obligations by pushing toxins on the rest of the country, confuse Americans and their Congressional representatives as they try to interpret the "toxic assets" GS, JPM and MS have been accumulating for "our benefit."

We are all in this together, right?
(Except when it comes to sharing in advanced automated trading platforms.)

(cont)

[luccas]

(cont from above)
We are all in this together, right?
(Except when it comes to sharing in advanced automated trading platforms.)

As for GS trading algorithms. Notice it is the only time in the last 18 months the FBI has done anything and they do it for GS. Not for the benefit of the American people. The FBI goes after this, but does not protect a single American citizen from the "toxic assets" which Goldman Sachs, JPMorgan and Morgan Stanley distributed like a poison fog of confusion into our economy.

The trading platform was corruptly had, and advantages of no competition, also, corruptly assured care of Henry Paulson, who made sure Lehman, Bear Sterns, Wachovia and WaMu, would NOT have the same fair chance to re-capitalize as many large NY based banks, WERE allowed to do. That was the main reason Paulson was there. To make sure competing firms got clocked on the head and then were destroyed or pulled aside. Their debts offloaded on the taxpayers, their more lucrative components divided by the favorite large banks of NY, while the Fed Board of Governors and Chairman pretend and insist, it was a time of crisis. A time to destroy capitalist rules of law, like all good friends of democracy.

[Palemoon]

So what's the lesson being taught here? That I can stop paying my bills, wait til my home is foreclosed on, cars in repossession threats, and I have court orders against me to garnish my wages, and then I can just waltz down to the nearest bank and apply for a $100,000 loan and magically fix everything?

LOLOL. Capitalists, they are always good for a laugh.

[otop016]

So...GS (who, as absurd as it sounds, is in business to earn a profit), should just surrender all future profits?

[Mike Keough]

Ah yes. Incredible story of investment genius. And now for the Big News. The news chich will just swell the hearts of the Republicans and all those Tea bagging idiots. They will not pay one freaking cent of taxes on their profit. Instead they will pay lawyers, to keep those Off Shore Tax Havens purring like a nice kitty cat, and lobbyists , to make sure that their donations to Our Politicians keep them a voting their way. No regulations, no taxes, no accountability. Why, this is just the kind of news which makes me want to PARTY.

[sherpaswami]

someone please take care of paulson

[renatam]

Hank Paulson's interests were being well cared for while he executed his strategic plans last Fall to completely decimate the competition of Goldman Sachs, and completely reposition the entire banking industry of the United States of America - and, make sure AIG paid Goldman 100% on every dollar owed, courtesy of the American taxpayers - and, of course, billions of dollars of taxpayer loans to play the world's casino, simultaneously.

Now, his interests in Goldman Sachs, as well as others such as Warren Buffett - who "invested" in Goldman's stock during these transactions last Fall - are cared for just fine.

Predatory bankers and investors spinning tales about their business prowess in Fortune, Forbes et al - should now tell America's children the honest truth. This was ALL sweetheart wheeling and dealing - and any THIEF could have done just as well as Hank Paulson, if the laws of the US of America provided for it - as they do these 21st Century robber barons.

[Clownbaby]

Is this report surprising considering that elite types from Goldman Sachs always happen to show up in gov't?

[renatam]

They don't join the Federal Government...or anything, for that matter, for altruistic reasons. Government IS business...to Goldman Sachs. And, Reagan, Bush, Clinton and Bush...made it so. Corporate interests became the purpose of Government - and the American taxpayers, their servants.

[Agent420]

Good analysis.

[tbone99]

Former federal bank regulator Bill Black, The Bill Moyers Show, April 3, 2009:

BLACK: The Bush administration and now the Obama administration kept secret from us what was being done with AIG. AIG was being used secretly to bail out favored banks like UBS and like Goldman Sachs. Secretary Paulson's firm, that he had come from being CEO. It got the largest amount of money. $12.9 billion. And they didn't want us to know that. And it was revealed by Congressional pressure on AIG.

Where Congress said, "We will not give you a single penny more unless we know who received the money." And, you know, when he was Treasury Secretary, Paulson created a recommendation group to tell Treasury what they ought to do with AIG. And he put Goldman Sachs on it.

MOYERS: Even though Goldman Sachs had a big vested stake.

BLACK: Massive stake. And even though he had just been CEO of Goldman Sachs before becoming Treasury Secretary. Now, in most stages in American history, that would be a scandal of such proportions that he wouldn't be allowed in civilized society.

MOYERS: Yeah, like a conflict of interest, it seems.

BLACK: Massive conflict of interests.

[luccas]

Can we get a representative in Congress or the Senate to call for forensic accounting of firms receiving TARP money, dating back 7 to 10 years, in the least, and the following records made public:

a) loan book records, detail showing where profit left firm

b) cash distributions (total dividends extracted from balance sheet annually prior to claiming they were under capitalized, and since that time)

c) number of subsidiary firms receiving cash from bank balance sheet, that may be paid back later, as a loan –

d) record of funds routed offshore per quarter, and back into company accounts the next quarter where the financial firm might be claiming a profit from trading, but is simply routing funds back to their firm, which were parked offshore during the crisis. Rotations going back 10 years can measure increased activity in moving money offshore; outside of U.S. accounts.

e) executive payout and bonus payment records, for prior 10 years to see if firms ever paid out that much money in any year prior to 2008 or in past down economic cycles.

f) shareholder registry to cross reference with Fed Board of Governors and Secretary of Treasury officers or policy makers, to see if regulators approving actions of Treasury, or acting to write new regulatory law, are also shareholders of banks benefiting from 2008 pass through operations (via past or present to dividends/cash distributions)

[delta7777]

.
SURPRISE ! ! !
.

[boynxtdoor]

This just means that they have so much disposable income that they can either reflect it as expense or as an income. Dunno if extra regulatory gove rnment measure is needed or just let them be. Problem with LIFE is you know what to do thinking back, you're unsure living at the present, and you have just an inkling of an idea what is in store in the future.

Peace.

[constitutional 1]

Its good to have people on the inside making the rules.. suckers

[sc92705]

Behind every great fortune is a crime.

[spinns17]

http://www.wired.com/underwire/2008/09/joker-bashes-bu/

[stuporman]

it must be nice to have the power to manipulate markets and governments.

[Clownbaby]

second.

[Barrelhse]

So they managed to screw us out of billions. Funny how they do so well while the rest of us hope fpr a new job so we can have insurance for our families. These people are pigs; they should be ashamed instead of proud.

[renatam]

They are sociopaths with no allegiance to any Nation. They are an international CARTEL, so by default...are very proud. And their strutting on the streets of my beloved Manhattan would make you want to scream.

[JD294]

So much for the Goldman Sachs claim they do not benefit from economic collapse they cause.

The solution to this is a return to the 90% tax rates of those Idyllic 1950's the republicans long for.

And for all you nay sayers out there that say this will only k i l l jobs - you're wrong - the people you take this money from send it all over seas and cause negative job growth in the US.