It’s come to this:
WSJ: Goldman Sachs Group Inc. (GS), known for avoiding many of the blowups that have battered its Wall Street rivals, now is likely to report a net loss of as much as $2 billion for its quarter ended Nov. 28, according to industry insiders.
The loss, equal to about $5 a share, would be more than five times as steep as the current analyst consensus for the Wall Street firm, as it faces write-downs on everything from private equity to commercial real estate.
Though analysts and investors already were bracing for Goldman’s first quarterly loss since it went public in 1999, the pessimism has grown sharply. “The last two weeks have been nothing short of horrible, with asset prices coming under ever more pressure than before,” said Susan Katzke, an analyst at Credit Suisse Group, who on Monday reduced her Goldman estimate to a fiscal fourth-quarter loss of $4 a share. Previously, she projected a profit of $2.47 a share. Goldman is expected to report its financials in a few weeks.
It’s worth keeping this in perspective, of course. Citigroup has lost more than $20 billion over the past four quarters. But still.
One area that is thought to have given Goldman particular problems in the just-ended quarter is its “book” of so-called distressed investments. Over the years, Goldman has invested in everything from troubled auto loans in Thailand to the debt of a liquor maker in South Korea to struggling golf courses in Japan. This business was once a big profit centre.
It isn’t known whether these specific investments contributed to the write-downs in this portfolio, and Goldman doesn’t disclose the size of its book of distressed investments, which is housed in its fixed-income department. But the business is substantial. In 2005, a blowout year for the group, Goldman bet $24 billion of its own money on this type of investing, according to people familiar with the matter…
Goldman also is facing write-downs on its 2006 investment in Industrial & Commercial Bank of China. Goldman had made nearly $2 billion in paper gains on this investment at one point. But ICBC’s stock fell by almost 28% in the Goldman’s fiscal fourth quarter, and this alone could result in a write-down of about $700 million.