Goldman Sachs’ 2% Income Increase: Impressive or Unbelievable?

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How about our friends at Goldman Sachs (NYSE:GS)? Its peers in investment banking industry have been ravaged by subprime writedowns (a problem of their own making). Mortgage lenders, bank stocks, you name it…financials have been battered this quarter. But not Goldman.

Goldman beat everyone’s expectations and reported a 2% increase in fourth quarter net income. It was the eighth straight quarter Goldman has beaten expectations. Impressive. Or not believable. Take your pick.

Wall Street’s investment banks will pay out nearly US$38 billion in bonuses this year. That’s amazing considering shareholders have lost about US$74 billion in equity as firms like Morgan Stanley (NYSE:MS), Merrill Lynch (NYSE:MER), and Bear Stearns (NYSE:BSC) report big losses and take large write downs. But Dr. Marc Faber makes a good point in his latest Gloom, Boom, and Doom report. Every business must invest in capital to generate future profits.

In the financial world, people are capital. If you don’t compensate them, they walk out the door to your competitors. It goes to show you that investment banks—in addition to performing the indispensable role of matching risk capital with entrepreneurs—exist to make their employees rich.

Dan Denning
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. A 2% increase in dishonesty sounds to mre more like it :-)

    Reply
  2. the NYSE ought to send (GS) one way to australia and write it off ……………………………………………………………………………………

    Reply

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