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Reply #21: Goldman amasses $164bn war chest [View All]

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Demeter Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Apr-15-09 05:50 AM
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21.  Goldman amasses $164bn war chest

Goldman Sachs has amassed a war chest of $164bn in cash and liquid assets that could be used to buy distressed securities and loans as its rivals clear their balance sheets, Goldmans chief financial officer said on Tuesday.

David Viniar spoke as the bank completed the sale of $5bn in common stock at $123 per share which it plans to use to pay back some $10bn from the governments troubled asset relief programme.

The sale price represented a 5.5 per cent discount to Mondays close. Goldmans shares closed down more than 11 per cent at $115.11.

Other banks were weaker too, with Morgan Stanley down 12 per cent as investors speculated it could raise funds when it announced results next week.

Morgan Stanley declined to comment.

Speaking a day after Goldman reported $1.81bn in first-quarter earnings, Mr Viniar said the banks liquid assets, which rose more than $50bn in the first quarter, could also be put to defensive use if the crisis worsened.

Goldmans earnings were helped by a record $6.5bn in revenues in fixed income, commodities and currencies (FICC) activities. It made money taking advantage of the wide difference between buying and selling prices in those markets.

The environment in the first quarter was such that . . . there were so many opportunities in truly liquid assets that there was no need to use liquidity to buy illiquid assets and there werent a lot of good illiquid assets for sale, Mr Viniar said, adding that strong liquidity made sense from a defensive and offensive point of view.

He acknowledged the liquidity position was a drag on profits, but said in the current environment prudence is the better path. But he noted activity in the capital markets was gaining momentum, pointing to two dozen equity offerings last week.

In an interview with the Financial Times, Mr Viniar said Goldman wanted to pay back the $10bn in Tarp funds as soon as possible so it could pay bankers, invest abroad and hire foreign workers without generating criticism it was using taxpayer money for such purposes.

However, Mr Viniar told investors that repaying Tarp would still allow Goldman to keep issuing government-guaranteed debt.

Its important to run our business the way it ought to be run, he said. Not only is it important to be able to compensate deserving executives with bonuses much larger than those currently allowed by regulators, he said, but we dont want to have to worry about who we hire with an H-1B visa (for skilled foreign workers).


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