Goldman Revamp Puts Dec. Losses Off Books

By David S. Hilzenrath
Washington Post Staff Writer
Wednesday, April 15, 2009

December was a disastrous month for Goldman Sachs, producing a loss of $780 million, but you wouldn't know it from looking at the company's bottom line for the last quarter of 2008 -- or the first quarter of 2009.

December fell through the cracks as the big investment-banking firm moved from a fiscal year ending in November to a fiscal year beginning in January. Billions of dollars of write-downs in the value of commercial real estate loans and other assets showed up in neither period.

The result was that Goldman was able to report a first-quarter profit of $1.81 billion Monday, just as it was gearing up to raise $5 billion from investors yesterday through a new stock offering.

The $1.81 billion profit, in turn, helped Lloyd C. Blankfein, Goldman's chairman and chief executive, offer a positive view of the company's performance in a Monday news release.

"Given the difficult market conditions, we are pleased with this quarter's performance," Blankfein said as the company disclosed results for the three-month period that ended March 27. "Our results reflect the strength and diversity of our client franchise, the resilience of our business model and the dedication and focus of our people," he said.

Goldman spokesman Lucas van Praag said the firm was required to shift to a calendar year as a result of its decision in September to become a bank holding company.

"We didn't make the rules," he said.

The company included a page of charts in its Monday news release showing its December results, but it didn't include a narrative description of those results as it did for the January-through-March period. In a conference call with analysts yesterday, Chief Financial Officer David A. Viniar said the firm incurred $2.7 billion in "fair value losses" in December, meaning losses related to declines in the value of assets it holds. Among those write-downs were $1 billion for "non-investment grade loans," Viniar said, according to a transcript.

Viniar told analysts that the company faced "a difficult market environment" in December.

Michael Williams, director of research at Gradient Analytics, which specializes in examining corporate accounting, said companies have a lot of discretion in deciding when to recognize gains and losses.

"It does seem rather remarkable that they ended up with such a large amount of losses in December itself, just in that four-week period," Williams said. "You're just left scratching your head to a large extent about what's underlying the numbers for the month," he said.

Given the scale of the December losses, and considering that March was so strong for the financial markets, it seems possible that Goldman's first-quarter profit would have been a loss if it were still reporting on the old schedule, Williams said.

The change in Goldman's financial reporting schedule made it more difficult for investors to track the company's performance over time, and it would have been helpful if the firm provided more information, analyst Steve Stelmach of FBR Capital Markets said.

The Goldman spokesman rejected the notion that the firm shifted losses into December. Goldman did not supplement its latest earnings release by showing past results on a comparable basis because its business isn't seasonal "and we didn't think it was material or significant," Van Praag said.

Goldman raised $5 billion yesterday by selling new stock at $123 per share. The firm has said it plans to use the money to repay the government for public funds it received under the Troubled Assets Relief Program.


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