6:50 a.m.| Where’s December?: Goldman Sachs reported a profit of $1.8 billion in the first quarter, and plans to sell $5 billion in stock and get out of the government’s clutches, if it can.
How did it do that? One way was to hide a lot of losses in not-so-plain sight.
Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s earnings statement, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ended in February.
The orphan month featured — surprise — lots of write-offs. The pretax loss was $1.3 billion, and the after-tax loss was $780 million.
Would the firm have had a profit if it had stuck to its old calendar, and had to include December and exclude March?
How to run a profitable financial institution in five easy steps.
1. Shift the fiscal year so that it excludes a bad month (December) and includes a better one (March).
2. Stick all your write-offs in the bad month.
3. Report a big quarterly profit.
4. Sell $5 billion of stock to the suckers who believe you.
5. Pay back the government so you can give yourself that big bonus you deserve.
Lloyd Blankfein, everybody. It's also worth noting that Goldman Sachs has set aside $4.8 billion for salary and bonuses -- a larger percentage of revenue than it set aside last year. Also a number suggestively similar in size to the $5 billion in stock they want to sell.
I hope to God this doesn't work out for them.
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