Goldman Sachs Says It Bought Too Many Illiquid Assets Before 2008 Crisis
Goldman Sachs was “buying more illiquid assets than we probably should have,” Viniar, 55, said today at a conference in Miami hosted by Credit Suisse Group AG, his eighth consecutive appearance at the annual event. “It was a good lesson learned.”
“Less liquid assets” increased at a 39 percent compound annual growth rate between the start of 2005 and the start of 2008, compared with 24 percent growth in liquid assets, according to a slide Viniar included in his presentation. Since the first quarter of 2008, the firm has reduced holdings of such investments at an 18 percent compound annual rate, while liquid assets are down 9 percent.
The assets included mortgage-backed and other asset-backed securities, loans, high-yield debt, emerging-market stocks and bonds and investments in funds and private equity, the slide showed. They totaled $172 billion in the first quarter of 2008, or 14 percent of the firm’s balance sheet, up from $65 billion, or 11 percent, three years earlier.
After posting record profit in 2009, Goldman Sachs reported a 38 percent drop in net income for 2010 as revenue from underwriting and trading slumped. Viniar said he expects revenue to rebound from fixed-income, currencies and commodities trading, the firm’s largest division, known as FICC.
“You’ll see FICC start to improve,” he said.
Goldman Sachs closed a proprietary-trading unit called Goldman Sachs Principal Strategies last year in response to new financial regulations, known as the Volcker rule, that puts limits on banks’ trading for their own account. Viniar has said the company is waiting to see how the final rules are written to determine if they will have to close other units.
“Whatever effects there have been, you’ve seen already,” Viniar said today. “We don’t see that big of an effect from the Volcker rule on our revenues.”
Goldman Sachs shares, which closed yesterday at $168.55, fell 0.4 percent in 2010 after doubling in 2009. They reached a peak of $247.92 in October 2007 and closed as low as $52 in November 2008.
The firm, which paid $550 million last year to settle a U.S. regulator’s fraud suit, published a set of new business standards last month after a committee of employees completed an eight-month review of the company’s practices.
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