A rare loss potentially looms for Goldman Sachs. (GS-N92.69-5.24-5.35%) A growing number of analysts reckon the Wall Street titan will slip into the red when it soon announces third-quarter results. According to Reuters Breakingviews: given the recent state of the markets, it’s not hard to imagine. But most assessments also expect Goldman will sock away nearly half its revenue to cover compensation. Top brass may need to grin and bear draining the pool.
The numbers don’t look promising. Figure Goldman reports a $180-million (U.S.) quarterly loss, as Barclays Capital predicts while assuming chief executive Lloyd Blankfein sets aside $1.8-billion for pay and benefits. Halving that would swing net income to about $500-million.
That’s no windfall either. It equates to return on equity of just below 3 per cent. Even if Goldman took the unusual step of leaving the comp line empty for the quarter, it would fail to reap enough to meet its cost of capital. Such restraint would nevertheless show a willingness to put shareholders first. And it wouldn’t necessarily be just a short-term solution. After all, Goldman’s first half wasn’t great either. Excluding the one-off cost of redeeming Warren Buffett’s preferred stock, it posted a return on equity of 10.2 per cent. That’s around half Goldman’s recent historical average through the cycle...
Read more at http://www.theglobeandmail.com/globe-investor/investment-ideas/breaking-views/goldmans-lesson-in-pain-management/article2193564/
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