Goldman CEO: Liquidity At Record Level In Woeful Economy Dow Jones Newswires - March 18, 2008 10:09 AM ET
By Jed Horowitz
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Goldman Sachs Group (GS) waved the liquidity flag Tuesday, saying it has better access to funding and cash than at any time in its history to deal with the current credit crisis.
"Our liquidity is stronger than it's ever been because that is the key and lifeblood to everyone in this business," Goldman Chief Financial Officer David Viniar told reporters after declaring "it's very hard to know" when markets, capital flows and credit will return to normal.
Viniar said Goldman continues to mark down the value of loans and securities on its books to mesh with market prices, but said the firm is not lowering them because of any precedent set by the Bear Stearns transaction. He also said that Goldman believes market prices for mortgage securities and some other assets are unrealistically low. Nevertheless, the firm is "obsessive" about marking its assets to market. "We do it, and we are diligent about it," Viniar said.
In its fiscal first quarter, which ended Feb. 29, Goldman wrote off $1.4 billion of leveraged buyout loans - lowered to $1 billion after hedges - and about $1 billion of residential mortgage loans. Goldman, the largest investment bank by market value, avoided much of the subprime debacle that has crippled Bear Stearns and other rivals but said it took writedowns in higher-quality prime and Alt-A mortgages. Alt-A refers to mortgages made to borrowers who are not asked to provide rigid documentation of their ability to repay.
Goldman, a leader in advising and financing leveraged buyouts, aggressively sold or wrote down its portfolio in the December 2007-February 2008 period. It ended the period with $27 billion of such loan commitments, down from $43 billion three months earlier. The total includes $18 billion of loans it already made, and $9 billion of commitments that may not actually transpire.
In mortgages, Goldman began March with long positions of about $19 billion - $12 billion of prime, $5 billion of Alt-A and $2 billion of subprime - down from $23 billion at the end of the fourth quarter of 2007. But the total does not include positions that are hedged - something that Viniar said is hard to do with precision - meaning the mortgage positions are significantly larger than those disclosed.
In another signal of continuing slow times, he said headcount in the current year will expand only modestly, in the single digits, from double-digit growth last year.
Goldman continued to show that it is managing through the crisis, however. Its fiscal first-quarter net income fell 53% to $1.51 billion, or $3.23 a share, but that significantly beat the estimate from analysts that it earned $2.58 a share in the quarter.
Analysts may have factored in too great a loss on Goldman's multi-billion-dollar common stock holdings of Industrial and Commercial Bank of China Ltd. (0349.HK), Viniar said, not realizing that it has a reserve for market losses in the stock. Goldman booked a $135 million loss on the ICBC shares, while many analysts forecast at least double that amount.