财经观察 1574 --- Goldman Faces Loss of $2 Billion

Goldman Faces Loss of $2 Billion for Quarter

By SUSANNE CRAIG, CARRICK MOLLENKAMP and SERENA NG

 

Goldman Sachs Group Inc., known for avoiding many of the blowups that have battered its Wall Street rivals, now is likely to report a net loss of as much as $2 billion for its quarter ended Nov. 28, according to industry insiders.

 

The loss, equal to about $5 a share, would be more than five times as steep as the current analyst consensus for the Wall Street firm, as it faces write-downs on everything from private equity to commercial real estate.

 

Though analysts and investors already were bracing for Goldman's first quarterly loss since it went public in 1999, the pessimism has grown sharply. "The last two weeks have been nothing short of horrible, with asset prices coming under ever more pressure than before," said Susan Katzke, an analyst at Credit Suisse Group, who on Monday reduced her Goldman estimate to a fiscal fourth-quarter loss of $4 a share. Previously, she projected a profit of $2.47 a share. Goldman is expected to report its financials in a few weeks.

 

On a day when financial stocks fell sharply, Goldman's shares plunged $13.23, or 17%, to $65.76 in New York Stock Exchange composite trading at 4 p.m. The stock is down 69% this year.

 

Beyond the damage caused by day-to-day market turmoil, Goldman is struggling to find its way in the new Wall Street, where the sort of risky bets the firm mastered as it was piling up record profits just a year ago are being curtailed. As it reduces its risk and behaves more like a traditional bank in order to secure more-reliable financing, Goldman also faces one of the biggest cultural shifts in the firm's 139-year history. Amid the financial crisis, Goldman has registered as a commercial bank.

 

One area that is thought to have given Goldman particular problems in the just-ended quarter is its "book" of so-called distressed investments. Over the years, Goldman has invested in everything from troubled auto loans in Thailand to the debt of a liquor maker in South Korea to struggling golf courses in Japan. This business was once a big profit center.

 

It isn't known whether these specific investments contributed to the write-downs in this portfolio, and Goldman doesn't disclose the size of its book of distressed investments, which is housed in its fixed-income department. But the business is substantial. In 2005, a blowout year for the group, Goldman bet $24 billion of its own money on this type of investing, according to people familiar with the matter.

 

Ms. Katzke of Credit Suisse said while the size of Goldman's real-estate and leveraged-loan investments is relatively modest compared with most rivals, the values have fallen steeply in recent weeks. Leveraged loans are loans typically issued by companies with "junk" credit ratings. Chinese Bank

 

Goldman also is facing write-downs on its 2006 investment in Industrial & Commercial Bank of China. Goldman had made nearly $2 billion in paper gains on this investment at one point. But ICBC's stock fell by almost 28% in the Goldman's fiscal fourth quarter, and this alone could result in a write-down of about $700 million.Goldman Faces Loss of $2 Billion for Quarter By SUSANNE CRAIG, CARRICK MOLLENKAMP and SERENA NG

 

Goldman Sachs Group Inc., known for avoiding many of the blowups that have battered its Wall Street rivals, now is likely to report a net loss of as much as $2 billion for its quarter ended Nov. 28, according to industry insiders.

 

The loss, equal to about $5 a share, would be more than five times as steep as the current analyst consensus for the Wall Street firm, as it faces write-downs on everything from private equity to commercial real estate.

 

Though analysts and investors already were bracing for Goldman's first quarterly loss since it went public in 1999, the pessimism has grown sharply. "The last two weeks have been nothing short of horrible, with asset prices coming under ever more pressure than before," said Susan Katzke, an analyst at Credit Suisse Group, who on Monday reduced her Goldman estimate to a fiscal fourth-quarter loss of $4 a share. Previously, she projected a profit of $2.47 a share. Goldman is expected to report its financials in a few weeks.

 

On a day when financial stocks fell sharply, Goldman's shares plunged $13.23, or 17%, to $65.76 in New York Stock Exchange composite trading at 4 p.m. The stock is down 69% this year.

 

Beyond the damage caused by day-to-day market turmoil, Goldman is struggling to find its way in the new Wall Street, where the sort of risky bets the firm mastered as it was piling up record profits just a year ago are being curtailed. As it reduces its risk and behaves more like a traditional bank in order to secure more-reliable financing, Goldman also faces one of the biggest cultural shifts in the firm's 139-year history. Amid the financial crisis, Goldman has registered as a commercial bank.

 

One area that is thought to have given Goldman particular problems in the just-ended quarter is its "book" of so-called distressed investments. Over the years, Goldman has invested in everything from troubled auto loans in Thailand to the debt of a liquor maker in South Korea to struggling golf courses in Japan. This business was once a big profit center.

 

It isn't known whether these specific investments contributed to the write-downs in this portfolio, and Goldman doesn't disclose the size of its book of distressed investments, which is housed in its fixed-income department. But the business is substantial. In 2005, a blowout year for the group, Goldman bet $24 billion of its own money on this type of investing, according to people familiar with the matter.

 

Ms. Katzke of Credit Suisse said while the size of Goldman's real-estate and leveraged-loan investments is relatively modest compared with most rivals, the values have fallen steeply in recent weeks. Leveraged loans are loans typically issued by companies with "junk" credit ratings.

Chinese Bank

 

Goldman also is facing write-downs on its 2006 investment in Industrial & Commercial Bank of China. Goldman had made nearly $2 billion in paper gains on this investment at one point. But ICBC's stock fell by almost 28% in the Goldman's fiscal fourth quarter, and this alone could result in a write-down of about $700 million.