How Could It Be That Earnings (& Expected Bonuses) Are So Strong at Goldman Sachs?
publication date: Jun 24, 2009
During the financial crisis of 2008, we heard over and over again from various pundits (especially those predicting the end of the U.S. as we know it) about phony profits from many companies, especially in the financial services industry, and how corporate profits would never see such heights again. By extension, these same folks argued, stocks would not rally back anytime soon. We were told that we were entering a new Great Depression and that the U.S. government would go bankrupt while the economy would go into a decade long tailspin like Japan did in the 1990s.
Well, who woulda thunk that in June of 2009, we'd see the headline "Goldman to Make Record Bonus Payout," which was the June 21, 2009 headline in the U.K.-based Guardian newspaper. Now, the folks who hate the financial services industry will jump all over this and claim that Goldman, which received capital injections from the federal government is misusing taxpayer money and padding their own bonus payouts. But, let's first read the key points from the Guardian article:
"Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm's 140-year history after a spectacular first half of the year...A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm. Staff in London were briefed last week on the banking and securities company's prospects and told they could look forward to bumper bonuses if, as predicted, it completed its most profitable year ever. Figures next month detailing the firm's second-quarter earnings are expected to show a further jump in profits. Warren Buffett, who bought $5bn of the company's shares in January, has already made a $1bn gain on his investment."
Warren Buffett is one smart man and clearly he knew what he was doing when he invested a lot of his firm's money in Goldman Sachs, a premier investment bank, during the financial crisis. Also, it's worth pointing to the naysayers who make knee-jerk accusations about corporations misusing government money that Goldman Sachs received $10 billion in government loans and has repaid 100 percent of that along with $425 million in interest.
As further evidence of the rebound in business and earnings at Goldman, check out the ten-year stock chart below. The stock has more than tripled in value from its lows late last year.