Goldman Sachs (GS) 01 (Jun 08 - Apr 10)

[kennynah]

The "great" Goldman may end up being the last Wall Street bank to stand

i doubt it highly .... BAC will come out of this mess stronger than many others, a new era for this outfit.

Also, this journalistic report is 20/20 in hindsight vision. Makes for a good read by the pool, but otherwise, useless.

[millionairemind]

With GS coming under the FED's supevision and changing their status to a "more traditional bank", gone are the days of high leverage with high returns. We should expect their earnings going forward to slow considerably.. hence should re-rate accordingly....

[blid2def]

With GS coming under the FED's supevision and changing their status to a "more traditional bank", gone are the days of high leverage with high returns. We should expect their earnings going forward to slow considerably.. hence should re-rate accordingly....

Don't worry. The bankers will cook up a new bubble again.

[millionairemind]

Wall Street wiped out: Goldman and Merrill to change structure
Posted Sep 22nd 2008 9:15AM by Peter Cohan
Filed under: Market matters, Bank of America (BAC), Goldman Sachs Group (GS), Morgan Stanley (MS)

Bloomberg News reports that Washington pulled another Sunday night special -- wiping out Wall Street as we have known it. Ironically, this move will put Wall Street back where it was prior to the Great Depression. How so? Last night the Fed approved changing Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS) from investment banks to commercial ones. Morgan Stanley -- which may sell up to 20% of itself to Mitsubishi UFJ and may put merger discussions on hold -- and Goldman Sachs now have greater odds of remaining independent.

Most significantly, the change will allow both banks to take consumer deposits and get short-term loans from the Fed. In exchange for that cheap money, they will need to increase the amount of capital they have, take less risk, and submit themselves to tighter regulatory scrutiny. The capital increases are the most significant piece of this new puzzle. According to the New York Times, "Goldman Sachs has $1 of capital for every $22 of assets; Morgan Stanley has $1 for every $30. By contrast, Bank of America (NYSE: BAC) has less than $11 for every $1 of capital." Goldman and Morgan will be required to raise significant capital to reach that 11 to 1 ratio. How they do that still remains a mystery.

Ironically, prior to the Great Depression, banks like JPMorgan operated both commercial and investment banks -- taking deposits from consumers and doing stock offerings for business. I was surprised to learn that they already have billions in deposits. "Morgan Stanley had $36 billion in retail deposits as of August 31 and Goldman Sachs had $20 billion," according to the Times. Now, they'll need to add branches and invest in marketing and systems to expand that amount. So, although the industry will return to its pre-Great Depression structure -- it will be more tightly regulated than it was back then.

The implications of this change are significant for bankers and the cities where they live. That's because enormous bonuses for Wall Streeters are history. In addition, this change will leave a huge hole in the economy of New York which depends so heavily on those big investment banking bonuses to fuel its real estate market, not to mention its expensive restaurants and other "finer things in life".

And this raises big questions about what will happen to all the MBAs who formerly streamed to Wall Street after graduation. If the global financial markets can survive this crisis, it would not surprise me to see investment banking revive in its current form through start-ups capitalized by institutional investors. Some of these MBAs could go into hedge funds or private equity -- but a regulatory crack down on those market players could also be in the offing. This could mean that MBAs actually have to manage businesses instead of shuffling financial papers.

Huge questions remain about whether we can make it through the current catastrophe. And for now this change in Wall Street is a bit of a side show.

[kennynah]

traditionally, GS has the highest leverage on their portfolio... hence, they are almost always winning big, only when they get their bets correct....BUT just one very wrong trade, can wipe them out...

given this knowledge.... i wont go Long on them.... now everyone is so damn worried about trading with counter parties... one cock up rumour about GS not being able to meet their capital requirement, and given their highly leveraged porfolio, can create a tailspin into their oblivion.... so, Put them..but as in almost all financial counters....Put's Vol is positive skewed now...so, the OTM Puts are relatively expensive ....

[millionairemind]

This piece of news caused the futures to sky rocket after hrs.

Goldman to Raise $7.5 Billion From Berkshire, Public (Update1)

By Christine Harper

Sept. 23 (Bloomberg) -- Goldman Sachs Group Inc. will raise at least $7.5 billion from Warren Buffett's Berkshire Hathaway Inc. and public investors in a bid to quell concerns that pushed up the Wall Street firm's borrowing costs and hurt its stock.

Berkshire is buying $5 billion of perpetual preferred shares, New York-based Goldman said today in a statement. Goldman, which this week transformed itself from the biggest U.S. securities firm to the fourth-largest bank by assets, also plans to raise at least $2.5 billion by selling common stock in a public offering.

Goldman Chief Executive Officer Lloyd Blankfein is turning to Buffett, the billionaire investor and second-wealthiest American, to boost market confidence even though Goldman hasn't reported a quarterly loss since it went public in 1999. The bankruptcy of Lehman Brothers Holdings Inc. and emergency sale of Merrill Lynch & Co. to Bank of America Corp. on Sept. 15 have fueled fears about firms that rely on bond markets for funding.

``At this point you're better safe than sorry, I think that's the moral of Lehman,'' said David Hendler, an analyst at CreditSights Inc. in New York. ``Everything's different because of the extraordinarily weak market conditions, as vividly described by our Treasury Secretary and Fed Chairman'' in congressional testimony today, Hendler said.

Federal Reserve Chairman Ben S. Bernanke joined Treasury Secretary Henry Paulson in urging skeptical lawmakers today to quickly pass a $700 billion rescue for financial institutions, saying the U.S. economy will shrink if markets don't begin functioning normally.

Shares Rise

Goldman stock surged in trading after the close of the New York Stock Exchange. The shares, which closed at $125.05 in composite trading, jumped as high as $138.88, an 11 percent increase, at 5:50 p.m. in New York.

``The investment will further bolster our strong capitalization and liquidity position,'' Blankfein, 54, said in today's statement. Berkshire's investment ``is a strong validation of our client franchise and future prospects.''

The decision to seek a cash infusion marks a reversal for Goldman, which less than a year ago was posting record profits and paying record bonuses: Blankfein and his two top deputies reaped payouts totaling more than $67 million apiece in 2007.

The company, while suffering from a decline in trading and investment banking revenue, has booked $4.9 billion of losses on devalued assets, a fraction of the writedowns taken by rivals such as Citigroup Inc., Merrill Lynch and Morgan Stanley.

`Intellectual Capital'

``Goldman Sachs is an exceptional institution,'' said Buffett, the 78-year-old chairman and CEO of Omaha, Nebraska- based Berkshire Hathaway. ``It has an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.''

Berkshire will receive preferred stock with a 10 percent dividend that can be called at any time at a 10 percent premium, the statement said. Berkshire will also receive warrants to purchase $5 billion of common stock with a strike price of $115 per share, exercisable at any time in five years.

Both Goldman and Morgan Stanley said this week that they are converting to bank holding companies supervised by the Federal Reserve, a move that allows them permanent access to borrowing from the Fed and permits more flexible accounting for some assets. Morgan Stanley agreed on Sept. 22 to sell as much as 20 percent of the firm for about $8.4 billion to Mitsubishi UFJ Financial Group Inc., Japan's largest bank.

Leverage

Goldman's stock has dropped 42 percent since the start of 2008 and 19 percent since the beginning of last week. The cost of credit default swaps, contracts used to insure against a default in the firm's debt, jumped 0.9 percentage points to 3.8 percentage points today, according to broker Phoenix Partners Group in New York. That means it costs $380,000 a year to protect $10 million of Goldman debt for five years. Last week the price reached a record $685,000.

Lucas van Praag, a spokesman for the firm, said yesterday that Goldman would consider raising capital in order to acquire attractive assets although it had no immediate plans to raise money.

One concern for investors has been the firm's leverage, or the amount of assets held with every dollar of shareholder equity. Goldman owned $23.7 of assets for every dollar of shareholder equity at the end of August, making the firm dependent on raising debt in the markets to help finance its $1.08 trillion balance sheet.

[LenaHuat]

WB is a bottom fisher. Smart move, perpetual preferred shares.
Fr WSJ :

Mr. Buffett has long had a fascination with Goldman and first visited the firm when he was 10 years old with his father, according to someone familiar with the matter. By the time he was 25, this person said, Mr. Buffett had a direct line to Sidney Weinberg, Goldman's onetime chief.

Mr. Buffett was one of the first people Lloyd Blankfein, now Goldman's chairman and chief executive, went to see when he became president of Goldman in 2003. "They just don't come any smarter," Mr. Buffett said of Mr. Blankfein in 2006.

Can any1 recall his father's profession?

[iam802]

stockbroker, congressman...

http://www.nndb.com/people/445/000022379/

[OE2008]

Temasek can learn from this great man. These remaining investments banks must be holding lots of toxic waste.
Call it by whatever name you like. To me this is market timing at its best

[Cheng]

Call it by whatever name you like. To me this is market timing at its best

Hi OE2008,

When someone reached guru status everything he buys goes up.

Very good bargains, preferred stock at 10% dividend, can be sold at 10% premium at cost, excercisable at any time in 5 yrs. Heard of any institution that had strike this kind of bargain?