Goldman Posts Loss, Downgraded by Moody’s

Goldman Sachs Group (GS) on Tuesday posted a $2.29 billion loss, -$4.97 per share, during its fiscal fourth quarter — the first quarterly loss since the firm went public in 1999 and a sign that the nation’s credit crisis has yet to run its course at major investment banking operations. Goldman earned $3.17 billion, $7.01 per share, in the year-ago period. The newly-minted commercial bank said its trading and principal investments business — which includes mortgages — posted negative net revenues of $4.36 billion, with negative $3.4 billion coming from fixed income and currencies trading. Read that again: negative net revenues tied to credit and mortgages. Fixed income trading losses helped push Goldman’s consolidated fourth quarter net revenues into negative territory, as well, to -$1.58 billion. The firm cited “unprecedented weakness across the broader credit markets, reflecting broad-based declines in asset values, substantially reduced levels of liquidity and dislocation between prices and cash instruments and the related derivative contracts and between credit indices and the underlying single names.” In plain English: pretty much every sector of the credit market blew up in the fourth quarter. And, obviously, that includes mortgages. Goldman said it lost $700 million alone on commercial mortgage loans and securities, underscoring the increasingly poor performance in that sector of the market. CEO Llloyd Blankfein noted, however, that Goldman — which has weathered the financial crisis better than nearly every competitor — still managed to post an annual profit. “Our results for the fourth quarter reflect extraordinarily difficult operating conditions, including a sharp decline in values across virtually every asset class,” he said. “While our quarterly performance obviously didn’t meet our expectations, Goldman Sachs remained profitable during one of the most challenging years in our industry’s history. Our deep and global client franchise, experienced and talented people and strong balance sheet position our firm well for the year ahead.” Moody’s Investors Service, however, was less than impressed and immediately downgraded Goldman’s long-term senior debt ratings to A1 from Aa3, excluding FDIC-guaranteed debt. “This crisis has demonstrated that the business model of wholesale investment banks is not as resilient as it appeared,” said Peter Nerby, a senior vice president at the rating agency. Moody’s assigned Goldman’s debt a negative outlook, citing “the likelihood of an extended downturn in capital market activity, which will reduce Goldman Sachs’ revenue and profit potential in 2009 and beyond.” That said, Moody’s stressed that fourth quarter earnings were within expectations and suggested the downgrade was more reflective of the agency’s assessment of the industry risk profile going forward than indicative of any particular shortcoming at Goldman itself. Shares were at $68.25, up 2.69 percent, when this story was published. Write to Paul Jackson at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.