Tuesday, April 14, 2009

It made money taking advantage of the wide difference between buying and selling prices in those markets.

TO BE NOTED: From the FT:

Goldman amasses $164bn war chest

By Greg Farrell and Francesco Guerrera in New York

Published: April 14 2009 18:39 | Last updated: April 14 2009 20:43

Goldman Sachs has amassed a war chest of $164bn in cash and liquid assets that could be used to buy distressed securities and loans as its rivals clear their balance sheets, Goldman’s chief financial officer said on Tuesday.

David Viniar spoke as the bank completed the sale of $5bn in common stock – at $123 per share – which it plans to use to pay back some $10bn from the government’s troubled asset relief programme.

The sale price represented a 5.5 per cent discount to Monday’s close. Goldman’s shares closed down more than 11 per cent at $115.11.

Other banks were weaker too, with Morgan Stanley down 12 per cent as investors speculated it could raise funds when it announced results next week.

Morgan Stanley declined to comment.

Speaking a day after Goldman reported $1.81bn in first-quarter earnings, Mr Viniar said the bank’s liquid assets, which rose more than $50bn in the first quarter, could also be put to defensive use if the crisis worsened.

Goldman’s earnings were helped by a record $6.5bn in revenues in fixed income, commodities and currencies (FICC) activities. It made money taking advantage of the wide difference between buying and selling prices in those markets.

“The environment in the first quarter was such that . . . there were so many opportunities in truly liquid assets that there was no need to use liquidity to buy illiquid assets and there weren’t a lot of good illiquid assets for sale,” Mr Viniar said, adding that strong liquidity made sense “from a defensive and offensive point of view”.

He acknowledged the liquidity position was a drag on profits, but said in the current environment “prudence is the better path”. But he noted activity in the capital markets was gaining momentum, pointing to two dozen equity offerings last week.

In an interview with the Financial Times, Mr Viniar said Goldman wanted to pay back the $10bn in Tarp funds as soon as possible so it could pay bankers, invest abroad and hire foreign workers without generating criticism it was using taxpayer money for such purposes.

However, Mr Viniar told investors that repaying Tarp would still allow Goldman to keep issuing government-guaranteed debt.

“It’s important to run our business the way it ought to be run,” he said. “Not only is it important to be able to compensate deserving executives with bonuses much larger than those currently allowed by regulators, he said, but “we don’t want to have to worry about who we hire with an H-1B visa [for skilled foreign workers]”.

No comments: