Wednesday, 12 November 2008

Goldman CEO speaks as firm's future in doubt

For most of the past century, Goldman Sachs was top of the heap among Wall Street's investment banking firms, but its prospects as a
heavily regulated bank are not so bright.

After months of fretting about capital and liquidity levels at banks, the market has turned its focus from Goldman's survival prospects to its earnings potential. Investors clearly do not like what they see.

"The days of getting 35 per cent (returns) on equity are over – much of that was achieved with leverage," Mendon Capital President and Chief Investment Officer Anton Schutz said on Monday.

Brokers and banks, he said, must change their ways. "There is no doubt their balance sheets are seen as weaker. They're trying to get leverage ratios down," Schutz said.

Investors may get some answers when Goldman Chief Executive Lloyd Blankfein speaks at a Merrill Lynch investor conference after the closing bell on Tuesday.

Goldman Sachs Group Inc shares on Monday fell to their lowest levels since 2003 as a growing chorus of analysts forecast plunging markets will produce a fourth-quarter loss – the firm's first quarterly loss since it went public in 1999.

The stock has plunged 71 per cent since reaching a record high last October and is down nearly two-thirds since the end of July. It stood at $72.04 in Tuesday morning trade.

Investors are questioning the firm's ability to retain its famed Midas touch, where an elite army of traders and bankers generated the industry's biggest profits year after year.

The question now is where Goldman will seek new sources of revenue and which businesses it will abandon as it goes through the transition from broker to bank.

"I don't know what Goldman and Morgan Stanley will look like after they re-size," Oppenheimer & Co banking analyst Meredith Whitney said. "I'm agnostic on those names right now. There is a lot they have to go through."

Source: EconomicTimes

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