Today on the blogs: Analysis of Goldman's earnings, rumors of Geithner's imminent demise...

Ok, unique snowflakes. Time to tear this apart... Judging by how many readers posted comments on the prior GS post and sent me emails (I wish I could analyze every angle), there should be enough brainpower here to fully digest the "one-time, non recurring, 4 month monster quarter." In the meantime, GS is finalizing the terms of its follow on: $123/share price, to be completed before market open.

One thing that caught my eye off the bat from the Q&A:

Question: Thanks, and cleanup on the exposures David. Could you provide us a where marks and exposure levels stood in March versus November for the hot spots, commercial real estate, leveraged loans, residential real estate, ALT-A, subprime.

David Viniar: Let me give you a couple of those and anything I don't answer, ask he into if I haven't given what you need. The commercial real state, we had at the end of the quarter market value of-- round numbers I'll give you, about $8.5 billion and about $1.5 billion was CMBS security sots real loan portion was about $7 billion and our average mark across there was something in the high 50s. The residential real estate for us, we just have a trading position at this point. We have nonagency residential real estate

We have roughly $4 billion split equal, roughly equally between prime ALT-A and subprime, and that is really a trading position. You know, it's going to go up or down over the course of any quarter at this point. I wouldn't call them legacy. Our leveraged loans, from the $52 billion of legacy loans that we had at the end of the third quarter of '07 which is when the credit crisis really hit, we're down to a market value of about $2.3 billion. So the exposure there is pretty minimal this point and the average mark on that 2.3 billion is in the range of 50 cents.

So if Goldman is marking their commercial loans at 50s, can someone please remind me how the Treasury/FDIC is making a valid case for these being valued at 84 cents? Also, it will be curious where the other banks disclose what their marks on these are - one would assume seeing how healthy the banking sector all of a sudden is, that Citi, BofA, JPM et al are all marked at 50 as well.

BlackRock Confirms Goldman Q1 Profit Was Non-Recurring And A Result Of AIG Unwinds

This is kinda a huge deal... Peter Fisher, managing director of BlackRock (yes, that BlackRock), states in a Bloomberg interview that Goldman's first quarter trading profit is non-recurring in nature, and believes it was mostly due to AIG unwinds... It is a little shocking that BlackRock would have anything bad to say about the phenomenal resurrection of financial companies, and puts the huge "profit" in it's true light. After all PIMROCK are the direct beneficiaries of the perpetuating delusion that all is well with the banking system, so it is odd that a BlackRock professional would dare to go against the grain on this one.

Is Goldman Really That Good?

Goldman Sachs released its quarterly earnings yesterday, and the headline was net income of $1.8 billion, doubling analysts’ estimates. I would say this is definitely good news for Goldman; whether it’s good news for the banking sector as a whole is more uncertain.

First, as Bruce Wayne, one of our readers, pointed out, the quarter-over-quarter comparisons left out December. Because Goldman just changed its fiscal year end, its previous quarter ended in November and its latest quarter ended in March. December was reported separately and - surprise, surprise - Goldman took a net loss of $0.8 billion. So if they had mashed December into Q1, they would have had a four-month “quarter” with $1.0 billion in profits.

Second, the positive results probably reflect a better mix of businesses than other banks enjoy. Although Goldman has made big one-sided bets, its trading operation traditionally hedged many of its positions and made a lot of its money on volume. Its positive Q1 results were largely due to strong performance in fixed income, currencies, and commodities (FICC) trading, which reflects the fact that Q1 was a busy quarter - in part because of the massive unwind at AIG - and, as Goldman’s CFO politely said, “Many of our traditional competitors have retreated from the marketplace.” With fewer players in town, the oligopoly profits go up - another reason why the big banks are even more powerful than they were before the crisis.

When it comes to the value of its own investments, Goldman seems to have done less well. Its net revenues for principal investments, mainly “Other corporate and real estate gains and losses,” were negative $1.4 billion in Q1 and negative $0.8 billion in December. While Goldman was able to more than offset this with trading gains, I wonder what the implication is for commercial banks that are not dominant players in trading.

Standard & Poor’s warned today that Goldman's awesome earnings last quarter may not be sustainable. The ratings agency is leaving in place its its negative outlook on the firm’s credit rating of A.

“Coupled with persisting weak economic conditions and capital markets turmoil, we believe it would be premature to conclude that a sustained turnaround” in Goldman Sach’s financial performance is under way, S&P wrote in a note reported by Bloomberg.

The big messages are that Washington simply cannot make all the bank bondholders good, despite its pretenses it can. Citi is going to become a test case sooner than most realize. Dizard also says that the charade that the banks have a liquidity problem not a solvency problem, is wearing thin even on those who have good reason to play along (and as far as I can tell, there is absolutely no Plan B when the world wakes up and realizes what a crock Plan A was).

Dizard's certainty that Geithner and Citi are goners comes through loud and clear even through his elaborate prose.

From the http://www.ft.com/cms/s/0/f715e3b0-25ef-11de-be57-00144feabdc0.html">Financial Times:

“That piece of shit up there, I never liked him. I never trusted him... But that’s history, I’m here, he ain’t.” Tony Montana (Al Pacino), watching a colleague hanged from a helicopter.

Scarface (1981)

It’s nearly time for some Washington careers to get the helicopter-noose treatment, particularly among the crowd of unvetted advisers and the tiny group of confirmed appointees at the Treasury Department. Politicos and policy hustlers have a style that differs slightly from Tony’s, but they’re about as sentimental. Secretary Timothy Geithner, not a bad or dishonest person, just a mediocrity who picked the wrong friends and trusted them for too long, can probably hear the rotor blades in the distance. Sadly, the prospective compensation packages for his next career are more modest than they would have been even a year ago…

...

You can pick out the likely geographical spot where the present bail-out wave will recede: 399 Park Avenue, the Citigroup HQ. Already, the Federal Deposit Insurance Corp’s resolution planners are circling the holding company’s shareholders, bondholders, and – at last! – top management.

Even other Tarp financed Wall Streeters are getting tired of the pretence that the Treasury and its advisers are brilliant or that their schemes make sense. Vishwanath Tirupattur, a Morgan Stanley credit strategist, said on a conference call last week that “The policymakers think lack of liquidity and leverage is the main problem…they think prices are depressed more for technical than underlying reasons. There are clearly several asset classes where current prices are better explained by collateral performance.”

“Collateral performance” means that the banking system’s real losses, not temporary mark to market losses, are overwhelming the capital injections finance-able by Federal bail-out appropriations. Congress won’t vote for any more, because they want to safely return home to their districts and maybe get re-elected.

So who’s left? The receivers at the FDIC. They’re sort of like the Internal Revenue Service, though without the Service’s easygoing institutional nature and its agents’ good sense of humour.

When there is a seizure, or “resolution”, of a bank, they take over as owner, guarantee deposits, and fight to take control of any assets. They are not customer-centric, relationship lenders. The FDIC is a corporation owned by the US government, but its costs are paid through levies on member banks.

Before Sheila Bair puts up government buildings colour swatches on the wall of Mr Geithner’s office, though, she will want to decide whether it might make more sense to stay in her current position. Senate confirmation would not be a challenge for her. Maybe, though, having some other punching bag at the Treasury would be better, especially since the FDIC faces staff shortages. Managing that, as well as a leadership transition and a raft of resolutions, would be difficult.

Also, while the Wall Streeters in Mr Geithner’s corner are demoralised enough to be brushed aside, and the big bank shareholders are either playing some derivative arb or totally out of it, the bondholders of the banks aren’t going to run away crying like little girls. Their basic implied threat is to withhold any further capital investment in big banks, which example would be followed by foreigners. That is less scary than it was before Hank Paulson’s crash.