Goldman’s results fail to shift fraud fix

GOLDMAN Sachs Group Inc reported blow-out quarterly earnings yesterday, but investors appeared to focus on the US fraud case against the bank as the Irish Financial Regulator examines the implications of the case for Irish regulated funds.

And Britain’s market watchdog launched its own probe.

“While the Financial Regulator cannot discuss supervisory issues related to regulated firms, in such cases, the Financial Regulator would examine whether there were any implications or related exposures for Irish authorised entities and funds,” Mathew Elderfield said.

Goldman’s results, which failed to bolster its sagging shares, came four days after the US Securities and Exchange Commission accused the dominant Wall Street bank of defrauding investors by concealing that a prominent hedge fund manager helped structure a debt product tied to subprime mortgages and was betting against it.

Goldman said first-quarter net income nearly doubled to $3.29 billion (€2.43bn), bolstered by strength in fixed income trading and principal investments.

The bank reported its lowest-ever first-quarter compensation ratio, but it still set aside $5.5bn for pay, bonuses and benefits in the period.

Goldman emerged as Wall Street’s most influential bank after the financial crisis but has faced a backlash over its pay and business practices. The bank’s co-general counsel, Greg Palm, launched a rebuttal of the SEC charges during the bank’s earnings conference call. Palm said the firm was “very disappointed” that the SEC had brought charges and insisted that Goldman “would never mislead anyone.” He also said investors who lost money on the subprime mortgage product that is the focus of the SEC suit had a wealth of experience and background in such deals. Palm faced questions about Goldman’s failure to alert investors when it first received a so-called Wells Notice from the SEC regarding the agency’s investigation. Palm insisted that Goldman would disclose any type of investigation or inquiry that it considered material.

“We do not disclose every Wells Notice we get because that would not make sense,” he said. He said the firm has had “no conversations whatsoever” with the US Department of Justice about potential charges beyond the SEC’s civil case.

Goldman’s forecast-beating earnings came as Britain’s Financial Services Authority (FSA) said it had started a formal investigation into Goldman Sachs International in relation to the SEC allegations. The FSA said it would work closely with its US counterpart.

Goldman chief financial officer David Viniar said Goldman was “distressed” by the wave of negative publicity and insisted that most customers remain loyal. “We are out talking to our clients,” he told analysts on the conference call. “You can see from our results last quarter that our clients still support us.” Some financial institutions are likely reviewing their dealings with Goldman during the financial crisis to see if they have any legal recourse. American International Group Inc took a loss of up to $2bn last year as it ended credit default swaps it had written on some Goldman collateralised debt obligations.

On Friday, attorneys for Lehman Brothers Holdings Inc filed notices of subpoena for firms including Goldman, seeking access to documents and employees in an investigation of whether certain third parties interfered with and damaged Lehman’s business.

Some firms may have issues hiring Goldman for advice, a financial institutions banker said.