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Controversy to surround Goldman success Controversy surrounds Goldman success
(about 10 hours later)
By Simon Atkinson Business reporter, BBC News Goldman Sachs shares have gained about 75% this year By Simon Atkinson Business reporter, BBC News Goldman succeeded in making money during fragile times on Wall Street
When Goldman Sachs unveils its latest results, they are widely expected to reveal a hefty profit. Within minutes of Goldman Sachs unveiling its latest results - the numbers began to attract a mixture of admiration and controversy.
Reports suggest it will have made more than $2bn (£1.23bn) between March and June - pretty staggering given that just six months ago it was seeing its first quarterly loss since going public in 1999. The US bank reported a net profit of $3.44bn (£2.1bn) in the April to June period from record revenues of $13.8bn.
Along with its rivals, it had been battered by an economic crisis not seen since the Great Depression and the Wall Street institution was forced into taking $10bn in federal aid. Those figures are pretty staggering given that just six months ago it saw its first quarterly loss since going public in 1999.
That loan, under the Troubled Asset Relief Programme (Tarp), has now been paid off as Goldman begins to operate free from state shackles. Along with its rivals, Goldman had been battered by an economic crisis not seen since the Great Depression and the Wall Street institution was forced into taking $10bn in federal aid.
It is, in many respects, business as usual at Goldman Roger Freeman, Barclays Capital But that loan, under the Troubled Asset Relief Programme (Tarp), has now been paid off as Goldman begins to operate free from state shackles.
Conspiracy theories abound about how it has managed to turn things around. 'Meeting expectations'
But after a fairly successful first three months of the year, it seems that it has continued to capitalise on the turmoil in the markets - making bets in the right direction on commodities and volatile currencies as well as shares - and profiting handsomely. Theories abound as to how it has managed to turn things around.
And its share price, while still well off its high, has gained about 75% in 2009. Goldman should be celebrated, not demonized William SmithSmith Asset Management class="" href="/2/hi/business/8149762.stm">Goldman Sachs sees bumper profit class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/07/goldman_recession_what_recessi.html">Robert Peston's blog on Goldman profits: 'Crikey'
"It is, in many respects, business as usual at Goldman," Barclays Capital analyst Roger Freeman told The Boston Globe. But after a fairly successful first three months of the year - where it made $1.8bn - it has continued to capitalise on the turmoil in the markets - making bets in the right direction on commodities and volatile currencies as well as shares - and profiting handsomely.
William Smith, chief executive of Smith Asset Management added that while the markets were fragile, Goldman managed "to make money in all environments, which is what you're supposed to do."
"Goldman should be celebrated, not demonized," he added.
And Barclays Capital analyst Roger Freeman, told the Boston Globe: "It is, in many respects, business as usual at Goldman."
Too much risk?Too much risk?
But while the business model and the tales of success may be familiar, the context in which it is trading is quite different.But while the business model and the tales of success may be familiar, the context in which it is trading is quite different.
US President Barack Obama is clamping down on bank pay
While once there was little but applause for huge returns, Goldman and its rivals are operating in a different sphere from 18 months ago.While once there was little but applause for huge returns, Goldman and its rivals are operating in a different sphere from 18 months ago.
Today, if profits are too good, the bank is likely to be criticised for taking too much risk - gambles that may have paid off this time but which could have left them vulnerable. The bank is likely to be criticised for taking too much risk - gambles that may have paid off this time but which could have left them vulnerable.
There will be complaints too that they are now operating in a much smaller marketplace - that the likes of Lehman Brothers were allowed to fail, while other institutions could prosper and now profit thanks to the taxpayer. There will be complaints too that they are now operating in a much smaller marketplace - that the likes of Lehman Brothers were allowed to fail, while other institutions can now profit thanks to the taxpayer.
However investors - who have come to expect Goldman to outwit its rivals - are unlikely to be impressed if they see profits as being too low. Like its rivals, Goldman had to turn to the state for help - including guarantees for its debt and access to central-bank liquidity and capital.
Goldman's results are probably the most high-profile on Wall Street BBC business editor Robert Peston says that, while the bank has declared that it can stand on its own feet again, "some may well ask whether taxpayers shouldn't have demanded a bit more for their succour, given that Goldman is once again the world's pre-eminent money-making machine".
"They are between a rock and a hard place," said Walter Todd, of Greenwood Capital Associates, which owns shares of rival Morgan Stanley.
Headline grabbingHeadline grabbing
There is also inevitably going to be a backlash from those who saw their investments crumble because of the actions of big banks, especially when it comes to bonus time.There is also inevitably going to be a backlash from those who saw their investments crumble because of the actions of big banks, especially when it comes to bonus time.
Analysts have estimated that Goldman is going to split about $18bn between its 28,000 employees - something that it would have struggled to do had it not got approval to exit the TARP scheme - after raising cash through the sale of debt and equities. The bank said it had set aside $6.65bn for pay and bonuses in the quarter - an average of $226,000 for each of its 29,000 employees.
And if that is not controversial enough, there has been plenty of other publicity in recent weeks - including allegations of employee theft and an unflattering feature of the firm in Rolling Stone magazine accusing it of playing an important role in market bubbles. That takes remuneration per employee for the first six months of the year to $384,000.
All this ensures that while JP Morgan Chase, Citigroup and Bank of America will also be revealing more about their financial performance in the coming days, it will be Goldman that is likely to grab the headlines. There was shock when analysts predicted that its annual staff payout this year could be nearly $18bn - or an average of more than $600,000 per person. But now that could easily be surpassed.
The Obama administration is trying to clamp down on such hefty remuneration.
But having got approval to exit the TARP scheme - after raising cash through the sale of debt and equities - it is much freer to pay its staff as it sees fit.
There has been plenty of other publicity in recent weeks - including allegations of employee theft and an unflattering feature of the firm in Rolling Stone magazine accusing it of playing an important role in market bubbles.
All this ensures that while JP Morgan Chase, Citigroup and Bank of America will also be revealing more about their financial performance in the coming days, it will be Goldman's results which really grab the headlines.