Goldman Sachs’ record profit is upstaged by Obama’s plan
Goldman Sachs Group Inc. could be excused Thursday for feeling that no good deed goes unpunished.
The vaunted investment bank, a focus of public fury since the financial crisis unfolded, started the day by releasing a fourth-quarter earnings report that had something for everyone. For shareholders, there was a record profit of $4.9 billion. For critics of Goldman’s eye-popping bonuses, the firm allocated nothing in the quarter for employee pay. The company even announced hundreds of millions of dollars in charitable donations.
But as Goldman executives were elaborating on the report, President Obama was outlining a proposal that would curtail several practices that have been central to Goldman’s success, such as proprietary trading -- buying and selling securities for the firm’s own benefit.
Although the plan is directed at a number of financial firms, analysts said it could strike at the heart of Goldman.
“I do think the biggest hot button for the administration is what is considered the investment banking business, and Goldman is the most visible part of that,” said Bill Tanona at securities firm Collins Stewart.
Obama spoke as Goldman’s chief financial officer, David Viniar, presented the company’s results in a conference call with analysts, several of whom drew attention to the coincidence.
“Man, the timing is incredible,” analyst Meredith Whitney told Viniar. “Obama is speaking now.”
Viniar didn’t sound amused by the intrusion of news from another event. “We planned ours first,” he said.
The finance chief tried to keep to his agenda but still criticized the proposed ban on proprietary trading, which he said accounts for at least 10% of Goldman’s revenue.
“That’s the wrong place to look, because that’s not what really caused” the financial crisis, he said.
The Obama proposal also could bar banks from managing private equity funds and hedge funds -- strong profit drivers for Goldman.
The restrictions would apply only to bank holding companies. Goldman was granted that status during the crisis, giving it access to low-cost, short-term loans from the Federal Reserve and thereby ensuring the firm’s liquidity.
Rep. Barney Frank (D-Mass.), head of the House Financial Services Committee, predicted Goldman would give up its new status to keep its business intact. But Viniar said the firm wasn’t considering that option, and some analysts said such a move would be politically untenable given the benefits the status had provided during the crisis.
“It would be a slippery slope to go back . . . in this political landscape,” said Mark Lane, an analyst at William Blair & Co. in Chicago. “I don’t think politically that they could do that.”
There was immediate debate about whether the proposal would make it through Congress -- and speculation about how Goldman and others might get around new rules.
Goldman’s stock went down $6.92, or 4.1%, to $160.87 a share.
The new restrictions would not affect the firm’s executive compensation, which has drawn widespread criticism. The company responded to that criticism by slashing the amount it set aside in the fourth quarter for its employees. After allocating $5.4 billion in the third quarter for compensation, it put aside nothing for employees in the latest period and took $500 million out of the existing compensation pool to give to the Goldman Sachs Foundation.
For all of 2009, the pot for salaries and bonuses was still up 48% from 2008. Divided evenly, the $16.2 billion would work out to more than $498,000 for each of the company’s 32,500 employees, though some will receive much more and others much less.
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