Goldman Sachs Has First Perfect Quarter With Zero Trading Loss
Goldman Sachs Group Inc.’s traders made money every single day of the first quarter, a feat the firm has never accomplished before.
Daily trading net revenue was $25 million or higher in all of the first quarter’s 63 trading days, New York-based Goldman Sachs reported in a filing with the U.S. Securities and Exchange Commission today. The firm reaped more than $100 million on 35 of the days, or more than half the time.
Goldman Sachs, which is facing a fraud lawsuit from the SEC related to the sale of a mortgage-linked security in 2007, generated $9.74 billion in trading revenue in the first quarter, exceeding all of its Wall Street competitors. Trading accounted for 76 percent of first-quarter revenue. The lack of trading losses could add to the perception that Goldman Sachs has an unfair advantage in the markets, said one shareholder.
“It will reinforce the heads we win, tails you lose mentality that people think actually exists and promotes the concept of an unfair advantage,” said Douglas Ciocca, a managing director at Renaissance Financial Corp. in Leawood, Kansas, which oversees about $2 billion in assets including Goldman Sachs shares. “It’s too politically charged not to, how is that possible that they only make money?”
The bank, which reported record earnings last year, is contesting the SEC’s lawsuit and the firm’s executives were interrogated at a Senate subcommittee hearing last month. Goldman Sachs, which maintains that it did nothing wrong, is also being investigated by federal prosecutors, said people familiar with the matter.
“This is the first time we have reported zero trading loss days in a quarter,” Samuel Robinson, a Goldman Sachs spokesman, said in an e-mail. “We believe it shows the strength of our customer franchise and risk management.”
Ciocca echoed that view, saying he thinks the performance proves the strength of the firm’s risk-management models and its ability to make money even in markets with low volatility.
“The statistical probability of going through what we did would never favor them making money every day,” Ciocca said. “It actually speaks very well of their capability to manage through different types of markets.”
Ciocca said he’s had first-hand experience of Goldman Sachs’s efforts to reach out to clients in the wake of the SEC lawsuit to answer questions about the matter. He said representatives from Goldman Sachs’s asset-management division contacted his firm during the last week of April even though they hadn’t been in touch for a year before that.
“It was tactical, it was appropriate, it wasn’t patronizing, it was very sincere,” Ciocca said.
In its SEC filing today, Goldman Sachs said it is expecting further litigation related to sales of collateralized debt obligations.
“We anticipate that additional putative shareholder derivative actions and other litigation may be filed, and regulatory and other investigations and actions commenced against us with respect to offering of CDOs,” the bank said.
The company also laid out in the filing a worst-case scenario of what could happen if the firm doesn’t resolve the SEC case and can’t obtain appropriate waivers from relevant regulators.
The results could include “an inability to act as a registered broker-dealer or provide certain advisory and other services to U.S. registered mutual funds,” the filing said. “In addition, regulators could impose restrictions on the activities of our banking, commodities, investment advisory or other regulated businesses.”
Goldman Sachs’s first-quarter earnings were the second- highest in the company’s history.
The firm’s stock dropped 22 percent from before the SEC lawsuit was filed on April 16 through May 7, making it the worst performer among the six largest U.S. banks so far in 2010.
The shares rose 84 cents, or 0.6 percent, to $143.83 at 4 p.m. in New York Stock Exchange composite trading, as global stocks soared with the European loan program to end the sovereign-debt crisis.
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