Macro Economic Trends and Risks
Goldman and Lehman Results

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By RodgerRafter
March 18, 2008

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The numbers that jump out at me in the Goldman report were that Trading and Investment revenues were down $4.2 billion (46%), and that Compensation and Benefits were down $2.1 billion (35%). Profits were $1.5 billion after taxes.

Also: Net losses on residential mortgage loans and securities were approximately $1 billion. In addition, credit products included a loss of approximately $1 billion ($1.4 billion before hedges) related to non-investment-grade credit origination activities,

They had some extra losses, so to stay profitable they cut compensation expenses by about a third. Let's see... $4 billion in compensation, divided by 35,000 full time employees... the average Goldman Sachs employee only made about $114,000 last quarter in salaries and benefits. Yeah, those guys are sure hurting bad. The fed better cut a full 1% to bail them out or salaries could fall even more.

Net interest income at Goldman was up about $200 million. Not much yet, but spreads didn't really widening in earnest until later in the quarter. I expect they'll make a lot more as a result of the Fed's easy credit in the coming quarters.

Side note: I was talking to a friend who used to be on the buy side of the bond market. He said his old firm was going through Goldman to access the repo market at the Fed. i.e. easy Fed policy means yet another way for Goldman to make money.

Lehman also cut Compensation and Benefits by enough to keep themselves profitable. Their 28,000 employees split $1.841 billion for the quarter, or about $65,000 on average. I can see now why everyone things they are hurting more than the rest of Wall Street. Poor guys.

Hello People? Even with massive write-downs, these firms are still making huge amounts of money. Sure, they had to shift some of their usual compensation expenses over to corporate income this quarter because of these silly little "liquidity concerns," but once that smoke has cleared they can get back to giving themselves the largest bonuses that their accountants will allow.

Meanwhile, the slowing economy is providing great cover for the Fed to give away Billions more to Wall Street through easy Fed policy. As I see it, they big bankers are riding the recession for all it's worth and bleeding the country dry.