Investor Relations 101

[Tina]

Issue Date: IR Alert - July 13, 2009

Boom Times: Analysts Expect Huge Profits to be Reported By Goldman Sachs on Tuesday in Miraculous Rebound
Most of Wall Street, and America, is still waiting for an economic recovery. Then there is Goldman Sachs. Up and down Wall Street, analysts and traders are buzzing that Goldman, which only recently paid back its government bailout money, will report blowout profits from trading on Tuesday. Analysts predict the bank earned a profit of more than $2 billion in the March-June period, because of its trading prowess across world markets. If they are right, the bank's rivals will once again be left to wonder exactly how Goldman, long the envy of Wall Street, could have rebounded so drastically only months after the nation's financial industry was shaken to its foundations, the NY Times reports.

The obsessive speculation has already begun, along with banter about how Goldman's rapid return to minting money will be perceived by lawmakers and taxpayers who aided Goldman with a multibillion-dollar cushion last fall. "They exist, and others don't, and taxpayers made it possible," said one industry consultant under the condition of anonymity, report Times writers Graham Bowley and Jenny Anderson.

Startling, too, is how much of its revenue Goldman is expected to share with its employees. Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees, or more than $600,000 an employee. Top producers stand to earn millions.

Goldman was humbled along with the rest of Wall Street when the financial markets froze last year. As a result, it lost money in the final quarter, a rarity for the bank. Along with other big banks, it was compelled to accept billions of dollars in federal aid, which it paid back last month.

Amid the crisis, it also converted from an investment bank to a more regulated bank holding company.

If the analysts are right — and given the vagaries of Wall Street trading, any hard forecast is little more than a guess — the results will extend a remarkable run for Goldman that was marred only by the single quarterly loss last fall of $2.12 billion.

Goldman Sachs is betting on the markets, but the markets are also betting on Goldman: Its share price has soared 68 percent this year. The stock is still well off its record high of $250.70, reached in 2007.

In essence, Goldman has managed to do again what it has always done so well: embrace risks that its rivals feared to take and, for the most part, manage those risks better than its rivals dreamed possible.

"It is, in many respects, business as usual at Goldman," Roger Freeman, an analyst at Barclays Capital, told the Times.

Traders said Goldman capitalized on the tumult in the credit markets to reap a fortune trading bonds. It profitably navigated a white-knuckled run in stock markets. It bought and sold volatile currencies, as well as commodities like oil. And it reaped lucrative fees from the high-margin business of underwriting stock offerings, which surged this year as other, more troubled financial institutions raced to raise capital.

Whether Goldman can keep this up is anyone's guess. With so much riding on trading, the risk is that the bank might make a misstep in the markets, or that today's moneymaking trades will simply vanish. The second half of 2009 looks tougher, many analysts say.