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Is Goldman hiding something?

16 October 2007

Sarah Butcher

Could it be Goldman Sachs isn’t doing incredibly well, and won’t be coughing up copious amounts of cash at bonus time after all?

Fortune magazine suggests Goldman’s 79% increase in 3Q net income was more down to clever accounting than to clever prop traders.

It apparently turns out that nearly 65% of Goldman’s gargantuan £4bn profits were derived from unrealized profits on complex derivatives which were marked to Goldman’s own models rather than to an unforgiving and illiquid market.

Fortune quotes Charles Peabody, an analyst at Portales Partners, who describes Goldman’s accounting as “opaque” and says, “A lot of these losses were real and a lot of their gains were paper, and that's something we'd like to know more about."

Goldman is predictably unhappy that aspersions are being cast on its third-quarter levitation act. The Telegraph quotes a bank spokesman who says suggestions of inflated paper gains were “preposterous”, and that "We do this for a living. It is impossible to manage your risk if you don't know the value of your assets."

What do you think? Can Goldmanites still count on portly payouts? Or are its profits a question of wishful thinking?

Comments (13)

Much as we all hate Goldman - they are the best in the business. They rarely put a foot wrong. I'm sure they'll do what's right for them (top management and stockholders) which probably means paying the ranks.

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Comments (13)

  • soon the true will come out...

    spy... 16 Oct 2007

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  • I think goldmans is running a pretty mediocre accounting and auditing team.

    goldmans 16 Oct 2007

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  • you will see that goldmans profits are based on thin air. the bank makes money from prop trading, which is equivalent to making money out of nothing.

    Anonymous 16 Oct 2007

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  • I'm sure the GM will look after their staff. Good luck Goldmannites.

    Dianne 16 Oct 2007

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  • Goldman is the Smartest in the business whereas they may have lost money on sub-prime backed securities. They will have invested in commodities and currencies which have been extremely profitable. This is the true value of a hedgefund and thats why investors were willing to bail out the non perfoming teams in Goldman. The real banks we should be worried about are ones that reported losses.They lack proper risk management systems.In the meantime I will be buying some Goldman shares and regretting why i never qualified to work for such smart guys.What do you think?

    Peter Gold Digger 16 Oct 2007

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  • Much as we all hate Goldman - they are the best in the business. They rarely put a foot wrong. I'm sure they'll do what's right for them (top management and stockholders) which probably means paying the ranks

    johnnie 16 Oct 2007

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  • think that some banks/ financials shift their problems to Q4...we will see - not only this sector also on other eco data output will follow much more pain...wanna join EURO currency? :-) USD becomes mex peso

    observer 16 Oct 2007

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  • Well, Salomon Brothers used to be the best in the industry, and genius do fail if they do not manage ego appropriately. However, I have to agree that GS guys are very acute with their franchise trading business and  they have a strong quant group. They seem to have good reasons to outperform.

    Unknown 16 Oct 2007

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  • It seems that Goldman is cooking something in its book. Whatever it is, I hope it will feed not, only the wolves, but also the hungry sheeps.

    ludrik 17 Oct 2007

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  • Long live Goldman Sachs.. Long live the Greed Machine

    Face off 17 Oct 2007

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