The WSJ is reporting that Goldman Sachs, the guys who have so far managed to avoid getting banged up by the credit crunch, has run out of luck.
“Industry insiders,” whoever they may be, are suggesting losses for the Q of as much as $5 per share.
Though analysts and investors already were bracing for Goldman’s first quarterly loss since it went public in 1999, the pessimism has grown sharply. “The last two weeks have been nothing short of horrible, with asset prices coming under ever more pressure than before,” said Susan Katzke, an analyst at Credit Suisse Group, who on Monday reduced her Goldman estimate to a fiscal fourth-quarter loss of $4 a share. Previously, she projected a profit of $2.47 a share. Goldman is expected to report its financials in a few weeks.
On a day when financial stocks fell sharply, Goldman’s shares plunged $13.23, or 17%, to $65.76 in New York Stock Exchange composite trading at 4 p.m. The stock is down 69% this year.
Beyond the damage caused by day-to-day market turmoil, Goldman is struggling to find its way in the new Wall Street, where the sort of risky bets the firm mastered as it was piling up record profits just a year ago are being curtailed. As it reduces its risk and behaves more like a traditional bank in order to secure more-reliable financing, Goldman also faces one of the biggest cultural shifts in the firm’s 139-year history. Amid the financial crisis, Goldman has registered as a commercial bank.
One area that is thought to have given Goldman particular problems in the just-ended quarter is its “book” of so-called distressed investments. Over the years, Goldman has invested in everything from troubled auto loans in Thailand to the debt of a liquor maker in South Korea to struggling golf courses in Japan. This business was once a big profit center.
It isn’t known whether these specific investments contributed to the write-downs in this portfolio, and Goldman doesn’t disclose the size of its book of distressed investments, which is housed in its fixed-income department. But the business is substantial. In 2005, a blowout year for the group, Goldman bet $24 billion of its own money on this type of investing, according to people familiar with the matter.
In your best Seinfeldian voice, one needs to mutter “That’s a shame . . .”
Goldman Faces Loss of $2 Billion for Quarter
SUSANNE CRAIG, CARRICK MOLLENKAMP and SERENA NG
WSJ, DECEMBER 2, 2008