Goldman Sachs Q1 Conference Call

We’ll be liveblogging the interesting portions of Goldman Sachs (GS) Q1 conference call right here.

It starts at 8:00 AM ET, so come back and keep refreshing the page…

With any luck there will be a few good questions about the SEC.

7:57: Hold music… Very pleasant.

8:04: David Viniar going through numbers. Says general council will discuss SEC charges, so that should be interesting.

8:05: Viniar going through units. Investment banking etc. Going through list of deals.

8:07: Now talking about trading. Everything did amazing. (Thank you steep yield curve!)

8:08: Talking asset management. 

8:09: Talking comp. Lowest ever. “The significant reduction in Q1 compensation accrual.. reflects recognition of environment.” Basically, this may be the new standard.

8:11: Talking about corporate values. “We remain committed to initiatives that improve stability of global financial system.”

8:12: Now they’re talking SEC charges…. General Counsel Gregory Palm says they take the SEC seriously and respect the agency.

8:13: “We would never intentionally mislead anyone.” “We would never condone inappropriate behaviour.”

8:14: ACA managed 22 similar CDOs with $15 billion in assets. IKB was an active participant.

8:15: Our role is of a financial intermediary and market maker. ACA and IKB were

8:15: A synthetic CDO transaction must have a long and short side. ACA had “sole responsibility” for determining the final portfolio, and was paid a fee.

8:16: The selection of CDOs were not relevant! Everything tanked!

8:17: Four key points to consider;

  • This was a transaction among serious counterparties.
  • ACA’s portfolio selection agent was solely responsible for the securities.
  • There was never any representation that Paulson was a long equity investor.
  • GS had no economic incentive for the CDO to fail… our incentives were aligned with ACA and IKB.

Now it’s Q&A time.

Question: how was John Paulson introduced if not as a long investor?

Answer: Paulson entered the process with ACA… we have no idea where ACA got, assuming they did, that Paulson was an equity investor. Also… in the end, the only thing that matters is the reference portfolio.

Question: Are there other Wells outstanding?

Answer: Our policy is to disclose everything that we consider material…  so no answer.

Question: Some talk about capital ratios, buybacks, etc from Guy Moskowski at BofA.

Answer: Committed to keeping capital high.

Question: Direction of comp ratio.

Answer: No real answer beyond what was presented in the beginning.

Question: Talking spreads…

Answer: they’ve tightened somewhat, not like they used to be.

Question: Question about SEC process… what are the options? Trial? Settlement? What should we be looking out for?

Answer: Obviously you’ve hit the options. You go to trial — which is what we’re doing — but you always have the option of settling.

Question: What are you telling the clients? Is there a heightened level of concern?

Answer: Our clients still support us, and they will support us as long as we provide very good service. You can see by our last quarter’s results.

Question: What about derivatives regulation.

Answer: We support a lot of derivative legislation, clearinghouses… We think it will make us more competitive.

Question: about legislation that would force anyone dealing in derivatives to lose access to Fed borrowing.

Answer: Derivatives play an important role in the economy.

Question: In simple terms… why is the SEC wrong?

Answer: In simple terms, the portfolio was selected by ACA… they were paid to do it, they did do it, they were the largest investor, they had incentive to do it.

Question: If John Paulson had suggested ALL of the securities, would that be material?

Answer: It didn’t matter what was selected. Everything got crushed from the 2006 vintage… Secondly, think about the fact that ACA was the economic purchaser. They had the incentive.

Question: Why not just settle with the SEC? Why not take the path of least resistance?

Answer: We don’t know how this is going to unfold yet. (Basically: eventually we’re going to settle)

Question: What do you think the SEC is going after here?

Answer: No real answer. SEC has made no indication whatsoever of what they’re stance is.

Question: Meredith Whitney asks about asset management biz. AUM…

Answer: We’re pleased with business. No fireworks here.

Question: Any idea whether this case could go beyond civil?

Answer: No conversations whatsoever.

Question: Any quantification of litigation reserves?

Answer: We do take litigation reserves… we don’t disclose for individual cases.

Question: Dodd bill… got any thoughts on derivatives clearing and the Volcker Rule?

Answer: Still very difficult to quantify effects of the bill… as long as regulation is consistent around the world, we’ll do just fine.

Question: Going back to the question of whether the synthetic needed a short… did they know that Paulson was that side of the trade?

Answer: NO IDEA.

Question: How could you have not known what ACA was assuming about Paolson?

Answer: No idea, based on the facts that we know.

Question: Could deal have been consummated without Goldman having taken its own long position?

Answer: No idea, but the loss we took is a real loss.

Question: Will comp ratio stay where it is?

Answer: No real answer.

Conference call is over… full analysis coming soon.

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