Anyone starting to pick up a pattern out of financial companies? That’s back to back preannouncements out of the major financials. Seems like a concerted effort to create short squeezes as these reports could easily be released on the scheduled date. The goldman one is particularly amusing as they preannounced a few hours early and are out with a $5billion equity offering overnight which looks like a well timed call on their share price. If you recall they did the same thing when they got buffet to invest, announce the investment at night and then use the momentum to sell shares before the open.
No knock on Goldman, they are clearly the best hedge fund on the planet, and these numbers show you that. Ib revenues down 30% yr/yr, financial advisory down 21%, asset mgmt down 29%, securities services down 30%, equities down 20%, trading and principal up 64%, and ficc was up over 100%.
Basically what is considered ‘core investment banking’ was down across the board. Yet, gs got to go out and make money off cheap funding courtesy the US govt. Compensation is up 18% year over year and the payout ratio is up to 50%(it was 48% last year). Surprising? Goldman's head count came down by 7%. That means that anyone that is still at the firm is doing even better than he was before this whole collapse started. I won’t fault them for that. At least they take care of their people. But at the end of the day how can the US Govt justify bailing them out and not saving lehman brothers or bear stearns. Furthermore, if a firm has tier three assets of 60 billion and total shareholder equity of 63 billion, how are you going to let them out of tarp. Or maybe the question should be why did you ever let them in in the first place. If GS is a hedge fund, then why does the fdic need to back their debt issuances. Let them borrow at the type of cost that a firm with this type of leverage/risk appetite should be borrowing at, and maybe, just maybe, they will start to worry about the risk of the whole house burning down one day.
My view-Core profitability from stable recurring revenue streams has clearly been impaired, while volatile earnings from their ability to consistently outsmart everyone else as well as their ability to ‘manage accounting’ is at record high. Still a best of breed, but i don't even know what that phrase means anymore.
I was contemplating being long Morgan Stanley on this news but now I am starting to think that maybe being long a former broker-dealer that doesn’t run its own hedge fund is a very bad idea.