Goldman Sachs Q1 profits jump 91pc to $3.46bn
GOLDMAN Sachs, facing a fraud lawsuit from US regulators, reported that net income almost doubled in the first quarter and said it didn't mislead investors.
"This all seems to be at root about whether someone intentionally misled someone, and that's not something we would approve of or sanction," Goldman Sachs co-general counsel Greg Palm told analysts on a conference call yesterday. He spoke after the firm said earnings jumped 91pc to $3.46bn or $5.59 a share, surpassing analysts' estimates.
Goldman Sachs, led by CEO Lloyd Blankfein, is fending off regulatory claims while cementing its position as the most profitable investment bank in Wall Street history.
The Securities and Exchange Commission accused the firm of failing to tell investors in a 2007 collateralised debt obligation that hedge fund Paulson & Co, which planned to bet against the CDO, helped select the underlying assets.
Goldman Sachs had "no incentive" for the deal to fail, and lost more than $100m on the transaction, Palm said.
The firm was "somewhat surprised" when the SEC filed its suit on April 16, as "no one had told us in advance," he said.
Blankfein, 55, didn't refer specifically to the suit, saying in a statement announcing earnings that "in light of recent events involving the firm, we appreciate the support of our clients and shareholders, and the dedication and commitment of our people."
Shareholders said concern about potential fallout from the accusations would supersede the earnings report. The stock, which dropped 13pc last Friday after the SEC filed its case, fell $2.88, or 1.8pc, to $160.44 in New York Stock Exchange composite trading.
Ralph Cole, a senior vice president in research at Ferguson Wellman, is among investors who said they are concerned the case could hurt Goldman Sachs's reputation and cause clients to switch their business to other firms.
Another worry is that the case could lead to additional lawsuits against the bank and add impetus to financial-reform efforts that would erode Goldman Sachs's earnings potential.
"The question has been raised and cannot be definitively answered as to whether the company's political/SEC issues are damaging its customer base on the investment banking and asset management sides," Richard Bove, an analyst at Rochdale Securities in Lutz, Florida, wrote in a note to investors.
"They require goodwill. The company does not understand that it needs a strong offense to gain that goodwill."
In the UK, Britain's financial regulator said Goldman Sachs's London units will be formally investigated for fraud.
"The Financial Services Authority has decided to commence a formal enforcement investigation into Goldman Sachs International in relation to recent SEC allegations," the FSA said in an emailed statement.
In its earnings announcement, Goldman Sachs said revenue from fixed-income, currencies and commodities trading, which contributed more than half of revenue last year, rose 13pc in the first quarter to an all-time high of $7.39bn.
That beat estimates for $5.95bn from Howard Chen at Credit Suisse Group AG and $6.09bn from Roger Freeman at Barclays Capital. (Bloomberg)