Goldman’s Orphan Month

posted by Nima

April 14, 2009 · Posted in Business 

Yesterday I wrote about the recent optimistic bank results:

There seems to be a common theme to this: Inflate the stock price with phony good news and then quickly issue additional equity…

Is there anyone else whom this could apply to? Let’s see what we can find Inside Goldman Sachs’ Results:

Yesterday, after market close, Goldman Sachs Group, Inc. (NYSE: GSNews) reported 1Q09 earnings of $1.66 billion or $3.39 a share, up from $1.51 billion, or $3.23 a share a year earlier. The results were way ahead of consensus estimates of a profit of $1.64 per share. A conference call to discuss the results was held this morning.
(…)
The bank also announced a $5 billion offering of common shares to the public. The proceeds will be used to repay the $10 billion of capital it received from Treasury under the Troubled Assets Relief Program.

Obviously Goldman isn’t even trying to be subtle about this approach. The motto seems to be to take advantage while the high stock prices last.

Is there reason to believe that Goldman is not being truthful about their resules? Why yes, there is. Enter the mysterious Case of the Missing Month:

Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s earnings statement, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ended in February.

The orphan month featured — surprise — lots of write-offs. The pretax loss was $1.3 billion, and the after-tax loss was $780 million.

Nice one, Goldman. Let’s see how many idiots will fall for it. Will it help them in the long run? Abe Lincoln may have some good advice: “You can fool some of the people all of the time, and all of the people some of the time, but you can’t fool all of the people all of the time.”

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