Goldman leveraged to the max?

Discussion in 'Wall St. News' started by a529612, Apr 30, 2007.

  1. Among the big firms, Goldman Sachs Group Inc. pumped up leverage by the largest degree in recent years. Goldman says it was just trying to catch up to the levels of its competitors after it shifted from a partnership to a public corporation. Its ratio of assets to shareholders' equity, one common measure of borrowing, climbed to 25.2 to 1 in 2006, from 17.7 to 1 in 2002, according to analyst Brad Hintz of Sanford C. Bernstein. (Goldman says it has a pool of easy-to-sell securities valued at more than $50 billion that it could tap if market conditions require it to raise cash.) Goldman's 2006 profit of $9.54 billion was tops on the Street. Mr. Hintz estimates the increased leverage accounted for 20% of the additional pretax profits.One way Goldman ratcheted it up is through a joint venture with Bank of New York Co. involving repurchase, or "repo," agreements. Goldman uses stock from the accounts of its own traders and its hedge-fund clients, selling the stock temporarily and agreeing to buy it back later. In effect, the cash it receives is a temporary loan. Under the program, Goldman has effectively jacked up debt secured by stocks held for customers and its traders from 90% of the value of those shares to as high as 95% to 98%, people familiar with the program say. More than $50 billion of stocks is involved. -- WSJ 4/30/07
  2. rover


    goldie knows what theyre doing
  3. Damn straight.

    It's called trading and leveraging OPM, baby. Can't beat it with a stick.

  4. I hope they implode greedy bastards, They should try to be more like Bank Of America, I love Bank Of America.
  5. RedDuke


    Do they really? I highly doubt that they calculated all risks such leverage can bring for non liquid positions.

    Read some of Frank Portnoy papers.

    The next few years will be very interesting, I only hope that if crash does take place, leverage derivate trading will not be prohibited.
  6. jbt


    If Goldman implodes will that cause the collapse of the whole financial system?
  7. No one can even figure out the leverage risks, whether CDOs or otherwise.

    Their own risk managers have no idea as to how a LTCM situation would affect them.

    That's how complicated the derivatives markets have become.

    There are now derivatives of derivatives of derivatives markets, all extremely leveraged at each level.
  8. S2007S


    I think it would.
  9. S2007S


    You can only take on so much leverage before something goes wrong, it cant last this good forever....
  10. Mup


    You should now by now that will Uncle Sam always comes to the rescue just as they did with LTCM :D
    #10     Apr 30, 2007