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Goldman Sachs To Reveal $3bn Hit

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Guest Bart of Darkness
It is the first time since the 1960s that the US central banking system has been called upon to bail out a major bank, with the severity of the situation sparking fears that Bear's problems may trigger a crisis similar to the one that triggered the Great Depression of 1929.

Oh dear! :(

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http://www.telegraph.co.uk/money/main.jhtm...6/cngold116.xml

Goldman Sachs, Wall Street's most powerful investment bank, will this week announce asset writedowns worth about $3bn (£1.5bn), its biggest jolt to date from the crisis threatening to engulf the world's financial markets.

The bank's $3bn write­down will be based partly on the declining value of its 4.9 per cent stake in Industrial & Commercial Bank of China (ICBC), which is held separately on Goldman's balance sheet. The share price of ICBC, which conducted the world's biggest ever initial public offering in 2006, has fallen by about 14 per cent in recent months.

Goldman invested $2.3bn for its minority shareholding in ICBC, which is listed on the Hong Kong and Shanghai stock exchanges.

Goldman will also take a hit of about $1.6bn in its leveraged loans business, which has seen a marked decline in recent months amid a dearth in demand for trading bank debt. A further $1.1bn will be written down in connection with assets owned by Goldman's principal investment area, the bank's private equity arm.

Despite the multi-billion dollar hit, Goldman will point to the fact that its exposure to the deteriorating mortgage market remains minimal, according to people close to the bank.

"These are not the kind of toxic assets which have hurt banks like UBS, Merrill Lynch and Citigroup so badly," said one analyst last night.

Senior managers at Goldman, which declined to comment ahead of Tuesday's earnings announcement, have warned against complacency in recent months as rivals have staggered from one set of asset writedowns to another.

Lehman Brothers, which reports first-quarter results alongside Goldman, is expec­ted to mark down significantly more than the $830m of sub-prime and leveraged assets it did in the fourth quarter last year.

The comments of Dick Fuld, Lehman's chairman and chief executive, alongside the results will be monitored closely, as investors assess the potential next casualties of the crisis.

The cost to insure Lehman's debt jumped again on Friday - by 65 basis points to 465 basis points - in spite of its revelation that a fresh $2bn credit line was heavily oversubscribed.

Richard Bove, an analyst at Punk Ziegel & Co, a Wall Street investment bank, admitted that there was a problem of perception with Lehman. "There is a fear that problems affecting Bear Stearns will affect Lehman. Lehman is suspect in the minds of investors," he said.

Consensus forecasts from banking analysts estimate that profit in the first quarter will fall by 63 per cent to around $425m, from $1.15bn in the same period last year. Revenue is expected to fall by 34 per cent to $3.35bn.

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Richard Bove, an analyst at Punk Ziegel & Co, a Wall Street investment bank, admitted that there was a problem of perception with Lehman. "There is a fear that problems affecting Bear Stearns will affect Lehman. Lehman is suspect in the minds of investors," he said.

That was the problem BS had! Fear :ph34r:

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The bank's $3bn write­down will be based partly on the declining value of its 4.9 per cent stake in Industrial & Commercial Bank of China (ICBC),

Goldman will also take a hit of about $1.6bn in its leveraged loans business,

So, the mkt already knows about these thus it's in the price already.

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The efficient markets theory has been disproved by many academics - the Yale Professor Bob Schiller of the Case-Schiller index being one of them.

Or as RB's "friend" Warren Buffett said, he'd be a poor man if markets were efficient (He was referring to himself, not to his "friend" RB) :rolleyes:

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Lehman Brothers, which reports first-quarter results alongside Goldman, is expec­ted to mark down significantly more than the $830m of sub-prime and leveraged assets it did in the fourth quarter last year.

hmm my friend at Lehmans has assured me that they are not as exposed to sub-prime as a lot of the other banks and Lehmans is therefore quite safe. Is this what the management is telling them?

Edited by DoctorJ

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So, the mkt already knows about these thus it's in the price already.

But sentiment can swing very quickly. I can't wait to see the deflation about turn on HPC when it occurs.

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asset writedowns worth about $3bn (£1.5bn), its biggest jolt to date from the crisis

$3 billion is just chicken feed in the grand scheme of things at the moment .

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The efficient markets theory has been disproved by many academics - the Yale Professor Bob Schiller of the Case-Schiller index being one of them.

In fact, in your heart of hearts, if markets were efficient they would never mis price would they? All the information you were aware of the housing market has been out there for a long time...yet house prices and stocks related to their staying high did not price accordingly.

I agree markets are highly inefficient. But not about this type of old news.

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  • 293 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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