Wednesday, April 15, 2009

Head fake from financials?

Goldman Sachs (GS) And The Secret Of Bank Earnings - 24/7 Wall Street
Goldman’s results were unexpectedly good. The company said it earned $1.81 billion, or $3.39 a share, in the first quarter as improved trading revenue outweighed asset write-downs, handily beating the $1.64 estimate of 16 analysts surveyed by Bloomberg.

While Goldman’s earnings were good, what was better was that the company said it would raise $5 billion and use that and capital on hand to pay back the $10 billion of TARP funds it got from the federal government. The “payback” is the key sign that the Goldman results are the real deal. Wells Fargo did not offer the government a check. It said it hoped to, someday. That is almost certainly a sign that the bank can’t make the payment now or it needs to keep the cash it has for estimated losses in future quarters.

Goldman set a tone for bank earnings which probably won’t be matched this earnings season. By paying the TARP funds it said that it did not have to worry about the next few quarters. It is not concerned that losses from toxic assets, consumer credit, commercial lending, or leveraged buy-outs will be a problem later this year. Goldman implied that its earnings won’t be undermined by the troubles that may affect other financial firms as the economy continues to stumble and bank loans of almost every sort default with increasing frequency.

None of the other banks are going to be able to pull off what Goldman did.

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