Goldman Sachs: The Securities and Exchange Commission’s fraud charges against Goldman Sachs may be taking center stage right now. But the investment bank’s fixed income, currency and commodities trading unit cranked out record revenue of $7.4 billion last quarter. After months of bad headlines for the firm, Tuesday’s earnings report may offset fears that the latest blow could prompt clients to leave.
After all, customers have continued trading with the firm despite the criticism hurled at Goldman, ranging from the now infamous Rolling Stone profile labelling the firm a “great vampire squid wrapped around the face of humanity” to somewhat more specific assertions that it bet against its clients in subprime mortgages, profited unfairly from American International Group’s collapse, and helped Greece mask the stretched state of its finances.
With all that noise, it wouldn’t be surprising if enough clients took their business elsewhere that Goldman’s bottom line suffered. After all, the recovery in financial markets means there’s no shortage of rivals to choose from: JPMorgan, as well as recent government wards Bank of America and Citigroup, all reported bumper FICC revenue last quarter, too. Instead, Goldman’s revenue jumped on the back of what the firm called “very good” client-based performance in all the unit’s products and in all regions. The result was an impressive 20 per cent return on equity for the firm in the quarter.
The SEC’s charges — which have now also triggered an investigation by the UK’s Financial Services Authority — could be more damaging than earlier allegations, of course. Those were mostly conjecture and rumor, whereas the regulator’s case is both formal and better fleshed out. Regardless of whether the charges pass muster in court, the assertion that Goldman puts the interests of some clients — in this case hedge fund manager John Paulson — above others could yet spark an exodus. Goldman’s executives sound determined to fight the charges — spurred on, it seems, by feeling that the SEC blindsided them with its public announcement on Friday and by the regulator’s failure, according to co-General Counsel Greg Palm, to contact them since.
