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Tuesday, April 20, 2010

Risk - Return - Goldman Sachs

Goldman Sachs reports first-quarter net income nearly doubled to US$3.29 billion, bolstered by strength in fixed income trading and principal investments. The earnings of US$5.59 a share easily beat analysts' average forecast US$4.01.
A.P. Gouthey states, “To get profit without risk, experience without danger, and reward without work, is as impossible as it is to live without being born.” 
This news is overshadowed by the recent civil fraud charge by the SEC.  The Collateralized Debt Obligations (C.D.O.) are being reviewed from 2006, 2007.  In recent years Goldman Sachs has been one of the strongest banks through the financial crisis with minimal exposure to toxic mortgage securities.
Today while patronizing a local eating establishment the news came out strong - Goldman Sachs set aside 43% of net income to pay employee compensation and bonuses.  Okay, $5.5 billion is a lot of money and does this follow with the earnings that were posted?  Of the 75 C.D.O., what portion of that amount would affect the bonus structure?  I believe we have shifted our attention quickly from the issue of fraud.  Are we convinced the compensation structure created the issue?

“If people are good only because they fear punishment, and hope for reward, then we are a sorry lot indeed.” - Albert Einstein
Reference:
Business Day
Forbes