After expenses it represents an even larger portion of earnings.
When Lehman collapsed they were at 30x equity But recent WSJ article discussed how major banks would reduce their debt data prior to reporting each of the last 5 quarters and then boosted debt again mid-Q to make their trades.
Had a loss on the year but as a percentage of revenues, salaries and benefits are about 67%.
It was recently announced that Arena Resources, a relatively new portfolio position, will be acquired by Sandridge Energy (SD) for roughly $40 per share.
We are getting paid largely in stock (only $2.50 per share in cash) and we do not want to receive a large position in SD (risky balance sheet, natural gas-heavy e&p with inherent execution risk integrating ARD)
Instead of waiting for the deal’s completion and receiving Sandridge stock, we should sell ARD and allocate the capital into a new energy stock.
Put forth by Paul Volcker (former Fed Chairman under Carter and Reagan)
Now chairman of the “Economic Recovery Advisory Board” under Obama
Prevents commercial banks from owning or investing in hedge funds, private equity, and limits the trading they do on their own account (“prop trading”) the key to Goldman’s Business Model (~10% of revenues)
Goal: “Create a sound economic foundation to grow jobs, protect consumers, rein in wall street, end too big to fail, prevent another financial crisis”
Selling at about 9.5x estimated earnings and 1.4x projected year-end book value (fair multiples for short-term)
Forbes – Goldman shrank its compensation by $10B (to about 36% revenue) which boosted ROE to 22.5%. If they maintain this level it could be good, if they boost compensation back to 40% Revenue range, stock could be flat.
Although facing pressure on trading portion of their business they are well-positioned in the investment banking field for the “comeback of M&A” (up 20% over 1Q 2009) – IB ~$5B in revenue (only 11%)
Goldman Ranks 3 rd in 2010 league tables for global M&A by volume
Lagging financials so far this year, so expect a continued comeback, but no expectations for it reach pre-crisis levels
Big Banks lowering leverage an average of 42% prior to reporting it to the public over the past 5 quarters (WSJ).
Although masking their risk levels, could still potentially boost profits once again at Goldman Sachs, but don’t expect it to last.
“ We facilitate client transactions with a diverse group of corporations, financial institutions, investment funds, governments and individuals through market making in, trading of and investing in fixed income and equity products, currencies, commodities and derivatives on these products. We also take proprietary positions on certain of these products .”
“ Demanding unequal arrangements with hedge-fund firms, forcing them to post more cash collateral to offset risks on trades while putting up less on their own wagers. At the end of December this imbalance furnished Goldman Sachs with $110 billion, according to a filing . That’s money it can reinvest in higher-yielding assets.”
About a week ago Goldman sent out a letter to shareholders (8 pages, longest ever annual letter) defending its position that it did not take “short positions” to bet against their clients.
Yet they were one of the first banks to short the residential real estate market (MBS) claiming that they just used those short positions to “offset their long positions” – whether they did or not the possibility of it happening is not good.
Because of its place as a middleman in many transactions, GFI has access to important data flow. The company’s growing software division sells market data and analytics products for building pricing models, developing trading strategies, and to manage, price, and revaluing derivative portfolios.
Because the brokerage business is so undervalued by the market presently, we are getting this highly profitable, rapidly growing business for free at the current price.