Translated material
Poor in spirit
Goldman Sachs has become "morally bankrupt"
British Prime Minister Gordon Brown (pictured) joined the attack on the American bank Goldman Sachs. He said on the BBC that the British Financial Conduct Authority should immediately launch an investigation into the activities of Goldman Sachs together with American financial authorities. According to Mr. Brown, the case of the largest American bank highlights the need for further reforms of the international banking system. “I am shocked by this moral bankruptcy. This is probably one of the most egregious cases we've seen," Mr. Brown said. Continuing allegations against one of Wall Street's most successful banks, according to experts, could help competitors push the company out of the investment market. Analysts expect Goldman to report lower earnings in the first quarter of 2010 compared to last year. At the same time, the income of the largest US banks Bank of America Corp. and JPMorgan Chase & Co. rose to record levels in the first quarter.Gordon Brown was outraged by the information that Goldman Sachs employees will receive 3.5 billion pounds, or $5.3 billion, in bonuses after just three months of work. In its London office alone, Goldman Sachs intends to pay out about 600 million pounds. About 5,500 employees are due to receive bonuses, meaning the average bonus per person will be just under £110,000.
As you know, the British authorities introduced the most stringent measures against bankers, imposing a 50% tax on them. According to experts, such a policy could lead to an outflow of bankers from London.
As experts note, the current investigation launched by the US Securities and Exchange Commission (SEC) against Goldman Sachs (see Vremya Novostei, April 19) may be just the tip of the iceberg. The SEC has already said it will take a serious look at US hedge fund Magnetar's bet against mortgage bonds in 2007. In this regard, the activities of the banks cooperating with him are examined - Deutsche Bank, Merrill Lynch and JPMorgan Chase.
“Although the allegations are very serious, I would reserve any judgment until the court's decision,” said the head of investment department of Pacific Investment Management Co. Neel Kashkari, who formerly worked at Goldman Sachs. “I believe that the current situation indicates the need for certain reforms.”
Goldman's Asian corporate clients remain loyal to the bank so far, despite accusations from US authorities. Asian regulators are also not taking any action yet, waiting to see how this process will develop.
One of Goldman's clients is South Korea's largest insurance company, Samsung Life. It does not intend to refuse the bank's services in organizing an initial public offering worth $4.5 billion. “I do not see any impact of this situation on the upcoming IPO,” said a representative of the insurer.
For years, Goldman, along with its longtime rival Morgan Stanley, controlled the entire Asian IPO market. Recently, European banks have also begun to enter this market.
Experts believe that if the situation begins to deteriorate, many clients may leave Goldman. "Goldman Sachs is just one of the banks that will get a scolding," a Hong Kong hedge fund manager who is a Goldman client told Reuters. --Other major Wall Street banks will suffer the same fate. No one is 100% safe."
Investor concerns around the world continue to grow, which is reflected in financial markets. American indices opened yesterday with a decline of 0.1--0.3%. The Russian index fell by almost 2.5% at the end of trading, approaching 1,600 points.
The value of reliable currencies is growing. “Players are buying the Japanese yen amid renewed risk aversion. This is due to the situation around Goldman and concerns regarding the Greek issue,” said CMC Markets analyst Michael Hewson.
Meanwhile, the charges against Goldman will help its competitors slightly squeeze the bank out of the market. Of the six largest US banks, only Goldman Sachs and Wells Fargo & Co. will show a decline in profits compared to last year, when they both showed record results, experts say. Goldman Sachs CEO Lloyd Blankfein expects investment revenue to be more than half what it was last year.
The bank's competitors, who lagged significantly behind it a year ago, are now rapidly catching up. Morgan Stanley hired more than 350 people last year to strengthen its investment business. JPMorgan CEO Jamie Dimon said last week that his bank won't be the only one to make money in the investment market this year as demand from clients has grown significantly.
“Since there is a large influx of clients, this will affect not only us. I think other players will also report good results due to the influx of customers,” Mr. Dimon said.
“Competition appears to be returning, but it won't necessarily be a zero-sum game as the overall market is growing,” Credit Suisse Group analyst Howard Chen told Bloomberg. “Global GDP is growing, yields are quite stable, and liquidity is high.”