ANALYSIS: SEC suits won’t sink Goldman Sachs – the firm’s stakeholders will.

The 83% earnings drop – and high salary costs – are doing Goldman’s reputation far more harm than the SEC.

The good news is that Goldman Sachs profits are down 83%. Being squeaky-clean is much less profitable.

The even better news is that much else will also, The Slog says, have to change. Herewith some maths – or math for US readers:

43% of all Goldman costs go into remuneration. This means that around $550,000 is being set aside for each of the firm’s employees, but averages are misleading: being employed above senior-Veep at GS effectively means that, beyond possible imprisonment, your worries are over.

The UK’s bank bonus tax alone will cost the firm $600 million a year.

The 43% remuneration ratio barely dropped this quarter, yet profits were down four-fifths.

The SEC settlement cost the firm $550 million.

Global legal liabilities could run into hundreds of millions – spanning alleged scams all the way from Australia to Athens.

Goldmans will never be destroyed by Federal (or even EU) cases brought against it. However, the firm may well be neutered by a combination of truculent shareholders – and perhaps neglected clients – if it is seen to lose the Midas Touch alongside an enormous rise in cost of sales.

As for Lloyd Bankfine, if Warren gets the consumer protection job, his days are numbered. Not because she’ll nail him, but because the Goldman Sachs board will realise the climate has changed, and get rid of him.

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pseudo bill on July 21, 2010 at 10:37 am

Goldman is in all the papers this morning after its trading profits dived 40% in Q2. But far from being a disaster, these numbers show the Squid is still at the forefront of the investment banking wave. Although trading revenues fell, they’ll have fallen less dramatically at Goldman compared to other firms. Why is Goldman so dominant? Well they are damn good anyway. But it and a few other firms, notably Barclays, weathered the crisis in 2007-2008 in far better shape than competitors – giving themselves huge competitive advantages in the markets that have followed. Since then they’ve reaped windfall investment banking revenues from a number of factors: limited competition, higher fees, and enforced clients. The winners of the crisis have found themselves leading a very remunerative investment banking oligopoly. Don’t mock them. These banks managed a very effective path through funding and capitalization traps, and were able to use government bailout packages and support mechanisms as springboards. Critically, the successful banks were able to limit their attachment to government support. Goldman made a virtue of repaying the TARPS money it was forced to accept at the earliest opportunity. Barclay’s avoided what seemed to be an inevitable Government bailout through the expedient of selling itself to the Middle East at the last minute. As a result when the market’s staged the spectacular recovery rally in the second half of 2009, these banks were not mired in the politics of government support/intervention and were already up, running and able to profit. In effect the crisis presented significant business gains – while competitors had been sidelined or vanished, the survivors garnered very large windfall profits. Markets have hardly normalized, but they are very much dominated by a smaller pool of players – something the successful banks would rather not discuss. They are vulnerable to regulatory sideswipe and have got target plastered all over them. Sure Goldman makes mistakes – its 89% decline in equity trading is apparently on the back of being short as the market spiked. And don’t expect too much bleating about the 4 weeks P&L set aside for the SEC fine and UK bonus taxes.Mr Buffett is watching with interest.

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