How Blankfein persuaded Goldman investors that down was up
The world is full of conspiracy theorists and Leftists just desperate to believe that Goldman Sachs exists solely to screw the ordinary citizen. But they are so, so wrong: Goldman Sachs exists to screw everyone that isn’t a senior executive at Goldman Sachs. And that includes the shareholders.
Year on year, the bank’s first quarter revenue from trading for customers was down 22%. But profit for common shareholders fell 72%, due largely to a $1.64 billion charge to buy back $5 billion of preferred shares from Warren Buffett’s Berkshire Hathaway. That’s a Light Brigade of a charge. But Mr Buffett, you see, has a brain – and lots of money. Common shareholders don’t have that much money, so they took nearly three times the hit that the firm did.
Goldman Sachs – the largest investment bank in the US – posted a profit to common shareholders of $908 million, or $1.56 a share. During the comparable period last year, it earned $3.3 billion, or $5.59 a share. That’s a Pacific Ocean of a drop. But in this latest quarter, Goldman set aside $5.23 billion for employee compensation.
On the basis of this three-card trick, Goldman shares rose 1.8%. Are investors nuts? Yes, they are: but that’s not the only factor. For you see, the average analyst’s forecast was 82 cents a share…so Goldman allegedly did much better than expected. And how are expectations managed? Read on.
In 2009, Goldman boss Lloyd Blankfein brought in Public Strategies, a Texas-based PR firm run by Dan Bartlett. Bartlett was President Bush’s longest-serving aide, and since last September the agency has been piling in with consumer and major B2B PR to ensure that everyone expected the worst – but then got something better. As former Lazard banker William Cohan writes in his new book on the world’s most hated organisation after Newscorp, Money and Power: How Goldman Sachs Came to Rule the World,
‘The big mystery to me is how adept Goldman is at public relations and spin, and how it has been for 160 years. When you sort of peel back the onion you realize that basically, they’re not so much different from other firms. But they’ve created a mystique.’
Have they ever. Just as in the UK’s Hackgate privacy-invasion campaign undertaken illegally by Newscorp, some injustices go beyond Left and Right, liberal and conservative. The myriad highly questionable Goldman forays and conflicts across markets in recent years culminated in a 2010 bonus pool of $13.1 billion – at a time when earnings were down 40%, and millions of Americans were losing both jobs and homes.
Last year, average remuneration inside Goldman fell 14%…during a year that ended with a 68% drop in earnings per share. Blankfein himself – in recognition of his work for God – doubled his bonus to $18 million. And (something which should always worry shareholders) non-compensation costs soared by 23%.
Leading Nazi propagandist Dr Josef Goebbels once wrote, “The big lie is the one everyone accepts without question”. It’s hard to escape the conclusion that investment bankers have enthusiastically embraced the good Doktor’s maxim. And as the personification of all things insanely unethical about that professional calling, Lloyd Blankfein’s behaviour represents the heartlessly urgent embrace of the serial rapist.