In the event that the predictive CDS market actually falls flat again on its face, Goldman Sachs rather perversely, would end up on the wrong side of regulators again for no apparent fault of its own.
First, let me reiterate that it was a relief for most Financial commentators to see the plain Goldman Sachs balance sheet esp afer ploughing through mountains of adds and subtracts in the BofA results as well as those of JP Morgan and Citi. Also the Debit Value Adjustment and Credit Value Adjustments so markedly changing the bottomlines at JP Morgan, Citi and BofA were not in evidence first at Wells Fargo and then the Emperor, Goldman Sachs. Wells Fargo does not have a Trading book to speak of for its clients and not much commercial credit either by the looks of it.
In the case of Goldman Sachs the bank had actually not much in credit spreads changing because of two factors. The first , it must be said that Goldman Sachs stood out and was rewarded by the street for not looking too eager to publish unrealised gains in its Net profit statements but apparently its MTM did not contribute willingly (as it meets the eye) to the CVA being muted than publishing outrageous profits like $6.2 bln for BofA. The second, a gain of $1.9 bln at JP Morgan, was a result of its buying CDS on banks and as banks continued falling thru the period it’s so called hedge ( which was a s much a bet) turned in its favour. There apparently, it would be simplest for you to understand that why Goldman Sachs did not have the same profits was that it was betting the other way, i.e. thru the quarter it was writing CDS on banks i.e. assuming that the banks had bottomed out and that writing CDS protection on banks would be profitable. Inthe first case it will be said (as on the WSJ blog that led thes tory) that Gs’s hedging practicfes were up to the mark in reducing such volatility in the credit and trading books that it need not book extraneous gain. However at least in the case of JP Morgan one could venure they made directional bets that banks would lose and bough protection that got them usurius gains too — of $2 bln.
Thus Goldman Sachs put itsmoney on a bet that banks had cycled the cataclysm completely and as banks, crestfallen from the tightening noose of regulation, stayed losing assets and cutting their profit estimates, Goldman Sachs also had to book losses of nearly $450 bln on the same protection. Now when the banks start completing their confidence rebuilding in the exchanges the same paper would bifd in profits for Goldman Sachs and JP Morgan instead would book out at the lowest levels ( as per its strategy ) and apparently follow in the same writing CDS on banking industry, though not on the European Banks. Shorting or writing uncovered CS protection on European banks is being banned by European regulators
Accruals at Goldman Sachs compensation have fallen to $293 k in the first nine months
- Goldman Sachs Hedges Its Way to Less Volatile Earning (blogs.wsj.com)
- Are You Average? At Goldman Sachs, Your Pay Is $292,836 (blogs.wsj.com)
- Goldman Sachs Reveals $428 Million Loss In Q3 2011 (inquisitr.com)
- Bank Results Season: Goldman Sachs, The emperor leaves profit town.. (advantages.us)
- Three on Goldman Sachs (antigerman.wordpress.com)