Goldman Sachs to reveal $3bn hit

Discussion in 'Stocks' started by Mup, Mar 16, 2008.

  1. Mup


    Goldman Sachs, Wall Street's most powerful investment bank, will this week announce asset writedowns worth about $3bn (£1.5bn), its biggest jolt to date from the crisis threatening to engulf the world's financial markets.

    Goldman, which has largely thrived amid the turmoil elsewhere on Wall Street, is expected to report a fall in first-quarter earnings of about 50 per cent. The writedown will underline how the financial turbulence is now affecting even the most stellar performers.
    Senior managers at Goldman have warned
    against complacency in recent months

    The bank's $3bn writedown will be based partly on the declining value of its 4.9 per cent stake in Industrial & Commercial Bank of China (ICBC), which is held separately on Goldman's balance sheet. The share price of ICBC, which conducted the world's biggest ever initial public offering in 2006, has fallen by about 14 per cent in recent months.

    Goldman invested $2.3bn for its minority shareholding in ICBC, which is listed on the Hong Kong and Shanghai stock exchanges.

    Goldman will also take a hit of about $1.6bn in its leveraged loans business, which has seen a marked decline in recent months amid a dearth in demand for trading bank debt. A further $1.1bn will be written down in connection with assets owned by Goldman's principal investment area, the bank's private equity arm.

    Despite the multi-billion dollar hit, Goldman will point to the fact that its exposure to the deteriorating mortgage market remains minimal, according to people close to the bank.

    "These are not the kind of toxic assets which have hurt banks like UBS, Merrill Lynch and Citigroup so badly," said one analyst last night.

    Senior managers at Goldman, which declined to comment ahead of Tuesday's earnings announcement, have warned against complacency in recent months as rivals have staggered from one set of asset writedowns to another.

    Lehman Brothers, which reports first-quarter results alongside Goldman, is expected to mark down significantly more than the $830m of sub-prime and leveraged assets it did in the fourth quarter last year.

    The comments of Dick Fuld, Lehman's chairman and chief executive, alongside the results will be monitored closely, as investors assess the potential next casualties of the crisis.

    The cost to insure Lehman's debt jumped again on Friday - by 65 basis points to 465 basis points - in spite of its revelation that a fresh $2bn credit line was heavily oversubscribed.

    Richard Bove, an analyst at Punk Ziegel & Co, a Wall Street investment bank, admitted that there was a problem of perception with Lehman. "There is a fear that problems affecting Bear Stearns will affect Lehman. Lehman is suspect in the minds of investors," he said.

    Consensus forecasts from banking analysts estimate that profit in the first quarter will fall by 63 per cent to around $425m, from $1.15bn in the same period last year. Revenue is expected to fall by 34 per cent to $3.35bn.
  2. axehawk


    If we cant trust Goldman, who can we trust?
  3. You trust GS?????:eek:
  4. BUT, BUT Cramer said they are invincible. He said it would go to $300.:D
  5. axehawk


    They've been crowning GS as holier-than-thou every since this debacle started.

    If they start crumbling, we could see a lot more carnage.
  6. maxpi


    Darn right!!
  7. Daal


    if all they are going to writedown is some stock that went down and private equity holdings valuations then I'd say they are in pretty good shape
  8. Bagholders are welcome anytime!
  9. cstfx


    Goldman reporting a loss?

    Finally!! Wondered how much longer they were going to be able to shift the numbers around before they had no choice.
    #10     Mar 16, 2008