Leave it to the clever boys at Goldman Sachs to turn dross into gold: They have come up with a way to hide massive losses so clever, it requires special comment: The Orphan Month.

Yesterday, we noted that the bulk of their profits had come from AIG transfer payments — the theft from taxpayers AIG 100% payouts funded via bailout monies that saw Goldie as one of the largest recipients. Floyd Norris notes that most of the AIG effect was in December. “For the first quarter, the total A.I.G. effect on earnings was, in round numbers, zero.”

How is it possible that this occurred? Isn’t GS on a December to February calendar? Well, there is a small asterisk about that. It seems that GS is moving from a December to a quarterly calendar. Meaning their latest Q is January thru March.

But what of December, with all t he AIG monies and the comparison to the strong December 2007 and all?

In a word, Orphaned:

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 news release, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ending in February.

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

Would the firm have had a profit if it stuck to its old calendar, and had to include December and exclude March?

Truly astounding . . . the word Chutzpah simply does not do it justice . . .


The Case of the Missing Month
Floyd Norris
NYT, April 14, 2009, 6:55 am


Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

53 Responses to “How to Puff Up Earnings, Goldman Sachs Style”

  1. call me ahab says:

    Also- read this from Naked Capitalism- don’t be fooled by all the BS being shoveled around:


  2. Steve Barry says:

    Thanks for pointing this out Barry. There is a groundswell forming. Peter Morici is scorching GS, saying we are “taxing grandma to pay Goldman”…this story also appears on DJ Talkback on screens all over America.


  3. jqui says:

    Goldman will now proceed to sue Floyd Norris for writing the story.

  4. AmenRa says:

    Lies, lies and more lies. Maybe that “666″ has some validity to it.

  5. call me ahab says:

    Whoa- check out the retail sales numbers

  6. JustinTheSkeptic says:

    But WTF are we not hearing about it on the major financial news outlets? How can they be so derilect in their duties!!!!

  7. Steve Barry says:

    I heard Santelli say something about it, Kernan didn’t completely understand, then they quickly dropped the issue.

  8. hopeImwrong says:

    I should have been a banker. It’s the obvious road to riches in hindsight.

    Not just a banker, but a RECKLESS banker.

  9. JustinTheSkeptic says:

    (Sp?) derelict…

  10. dead hobo says:

    Interesting. I’m going to look for the GS statements to see how they reported this. It would be a federal crime for a publicly traded company to not disclose something of this magnitude. However, there is no law against depending on the stupidity of others, especially the stupidity of those in the financial media, to ignore information that required a lazy investor to turn the page or ignore anything but a headline.

    About retail: April isn’t going to be good news. My visit to a couple of outlet malls in affluent areas last weekend was disappointing, unless you were a bargain shopper. I could buy leather coats at Wilson’s for $105, discounted from $495. Good quality, too. Almost the whole store was discounted. Not the stiff junk leather they have in the front of the store usually. Other stores were going out of business or also deeply discounted. No crowds like in Jan or Feb. Mar was ambiguous, but I didn’t expect this report.

    Finally, if GS is goosing the books, what does this say about the other banks? Good day to sell the news?

  11. Steve Barry says:

    Shouldn’t they report pro forma eranings also with such a material change?

  12. snapshot says:


    From Macro-man

    “Meanwhile, back in the US, Goldman recorded super earnings in the first part of the current fiscal year, announcing Q1 earnings of $3.39 per share, well above the consensus expectation of $1.64. Except that they didn’t. Buried in the small print, it appears that as the Easter Bunny was delivering candy and eggs to children all over the world, he also deposited a small turd in the GS income statement. In December, which magically falls outside the aegis of any reporting period (falling through the cracks, as it were, in the transision from investment bank to bank holding company), the firm lost $2.15 per share. Add that to the Q1 earnings figure, and you get a result that is comfortably lower than consensus.”

  13. dead hobo says:


    The interesting stuff starts on page 10, the right hand column, the unaudited consolidated statement of earnings. Net loss for December is 1.028 billion, or -2.15 / share. Reported quarterly net earnings were 1.659 billion. Adding the two numbers, GS really netted 631 million. Not bad but not blowout.

  14. Moss says:

    Remarkable. Totally legal, morally and ethically corrupt.
    The beat goes on as they will issue new shares.

  15. dead hobo says:


    Yeah, just using simple percent to total arithmetic, 4 month eps was about 1.29, or $0.35 BELOW consensus (using your numbers, above). Since there is no comparability, this number doesn’t have much meaning except as it reflects on the integrity of management with respect to full disclosure financial reporting.

  16. leftback says:

    Barry, you are just jealous. Alexis Glick gave Goldman a fantastic blow-job on Money for Breakfast today.
    No sooner had she wiped her lips, the Bloomberg team were at it as well.

    So we lent them a load of money via TARP and they made some of it trading, or they went to Vegas.
    Well done, chaps.

    BTW I see that Neel “Kash-and-Karry” got his marching orders today, replaced by Herb Allison.
    That’s one less Henry Paulson lap dog in the Treasury.

  17. dead hobo says:


    HA HA HA on them. We got it right here. What a bunch of lazy jerk offs.

  18. km4 says:

    It’s unfortunate that not enough Americans do not understand that The Triumph of the Banking Oligarchs continues ( and this will be Obama’s nemesis no matter his other policy decisions which I mostly agree with )

    Now if they could just read these 2 articles perhaps there will be pitchforks and torches and Wall St. startng with Goldman Sachs ( who probably would be forced to change their name like AIG )

    The Quiet Coup
    If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform.

    The Big Takeover
    It’s over — we’re officially, royally f**ked.

  19. Transor Z says:

    What’s the consensus on the value of ZeroHedge blog’s recent post re: GS’s program trading? The analysis is way over my head.

    The alleged mechanism seems to involve “high frequency” (whatever that means) low-volume trading to create an illusion of demand and so artificially boost equity prices — under the guise of providing liquidity to the market. I gather from the ZH entry and comments that there are some built-in incentives for companies to engage in this practice of providing “liquidity,” which is how they make money since the program trades themselves are at best break-even.

    I haven’t seen Barry respond to it yet. But the story seemed to provoke tinfoil hat responses at ZH and here over the weekend — increased talk about PPT, Sasquatch’s footprint, expressions of astonishment over the the size of GS activity from Steve Barry, etc.

  20. larster says:

    Aren’t we the leader of the free world because we have respect for the law and transparent financial markets, plus a heavy dose of military hardware? Looks like the first two are AWOL.

  21. Mannwich says:

    And retail sales “unexpectedly” fell last month. What a shock. That word “unexpectedly” (and “surprising”) should be etched in stone during this bizarre time period.

  22. At least BR and the rest of the folks (at least most of the rest) get it. Indeed, Goldman Sachs will one day be used to define chutzpah and hubris.

  23. Steve Barry says:

    With the market down, put/call is printing an astoundingly low .57…does this market want to drop 1000 in a day or what?

  24. dead hobo says:

    Transor Z,

    My take on that, which may be completely full of crap, is that GS is attempting to make the market appear more robust by setting floor values at higher and higher levels as the market rises. They sell when new money is suckered into the market as the market rises from the floor they helped set. They are playing with various behavioral economic factors, such as earnings season, bank earnings hype, “the bottom is here” thinking, and generally ignorant and pliant financial reporting. In other words, they’re playing with the rubes when they are most vulnerable. To me, this is a lot like what I think happened when oil rose to $147.

  25. leftback says:

    @Transor Z: Trading has been exceedingly thin, and many days they would sell 825 and buy 815 over and over. This is obviously black box trading, and it doesn’t seem to be big hedge funds like Renaissance.

    Who is doing it is anyone’s guess, but there are a lot less of the usual suspects remaining these days, so what’s not believable about the story? Broker-dealers buying the SPOOS = the PPT, if indeed there is one.

  26. leftback says:

    BTW, LB hopes that nobody missed the heavy irony in my post above regarding GS.
    Perhaps I should start using asterisks to indicate *irony*. Or you should read more Macro Man.

  27. Mannwich says:

    My wife (who is in retail) are laughing this morning about the pundits’ use of the word “unexpected” when describing the retail numbers last month. To WHOM exactly was this unexpected?

  28. franklin411 says:

    Does this mean I won’t be getting my 3 cents a word?

  29. In case you guys missed it, GS was in the WSJ today (in the letters to the editor) claiming that it didn’t really need AIG’s bailout. A bit more chutzpah, here’s the letter (I hope BR doesn’t mind me posting the whole thing):

    Prof. Amar Bhidé does his readers a disservice when he asserts that Goldman Sachs miscalculated the creditworthiness of AIG and was “made whole” by a government bailout of the company (“You Can’t Rush a Recovery,” op-ed, April 9).

    These are the facts: Goldman Sachs is in the business of acting as an intermediary for numerous clients and often assumes risk on their behalf. Our normal protocols require that we protect our shareholders from loss associated with our incurring these positions through rigorous risk management. This includes buying credit insurance which, in the matter at hand, we did from AIG, then one of the world’s largest insurance companies. The terms of this insurance included a requirement that AIG give us enough cash collateral to protect us against possible future loss.

    We have consistently said that we had no direct economic exposure to AIG. We marked to market the risk we had insured with AIG, and AIG was contractually required to give us collateral to cover any diminution in value. Because there were periods when AIG didn’t provide enough collateral, we hedged ourselves against the then seemingly unlikely event that AIG might default. The cost of this hedging was over $100 million. If AIG had failed, we would have had both the collateral and the proceeds from the credit default swaps and therefore would not have incurred any economic loss.

    In order to collect under a credit default swap, there has to be an event of default. No event of default means no payout. By supporting AIG, the government prevented the company from defaulting. Some have questioned whether, if AIG had defaulted, we would have received the money owed to us under the credit default swap arrangements. Because these swaps were written by large financial institutions which mark to market their obligations to each other and net their positions at the close of business every day, we exchanged collateral with the CDS providers on a daily basis. This protected us from the risk of any knock-on defaults.

    Finally, others have asked why Goldman Sachs didn’t take a “haircut,” in other words, less money than we were owed. We had taken great care and incurred considerable expense to protect our shareholders. Why would it have been appropriate for them to have suffered a loss when they didn’t need to?

    Far from miscalculating the creditworthiness of AIG, we acted in a way which most people would think of as a good example of responsible risk management.

    Lucas van Praag
    Managing Director
    Goldman Sachs & Co.
    New York

  30. kcowan says:

    $1.29 net EPS for 4 months ended March 31, means a prorata EPS of $0.93, a long way from $3.39!

  31. karen says:

    Curm, thanks for taking the time to post that… i would have missed it… very interesting indeed!

  32. Transor Z says:

    @ dead hobo: Thanks — a couple of people at ZH used the poker term “dead money” to refer to investors suckered in by the alleged distorting effects of the program trading activity. This sounds a lot like your point above.

    @LB: I’m probably going to go with the ZH “Nessie”/PPT sighting in the form of GS black box trading being just a blurry photo of a giant Scottish lake otter doing its thing. :)

    @Curmudgeon: Thanks!

    This includes buying credit insurance which, in the matter at hand, we did from AIG, then one of the world’s largest insurance companies. . . . the then seemingly unlikely event that AIG might default.

    Lucas, surely you’re not saying that AIG’s size dispensed with the need to perform due diligence… are you? Because, you know, they were crooked and stuff. It was in the papers.

    We have consistently said that we had no direct economic exposure to AIG.

    Translation: We never had sexual relations with that woman. ;)

    Far from miscalculating the creditworthiness of AIG, we acted in a way which most people would think of as a good example of responsible risk management.

    Depends on what your definition of “think” is. :)

  33. sunny45 says:

    No matter how much scream about all these accounting gimmicks, the MSM and the J6P with 401K, are happy that their retirement accounts are climbing back. They just don’t care how it’s done and neither are politicians. Only the ‘sane and logical’ investors are getting hurt. We are in Alice’s Wonderland.

  34. dead hobo says:

    Or if you just use simple addition, the number is even worse.

    Fully diluted, Mar 2009 earnings per share of 3.39 less Dec 2008 loss per share of 2.15 = $1.24. The figure of $1.29 applies the ratio of 4 month net to three month net, and multiplies that by 3 month eps. This is probably a decent range. There’s no way to know the proforma 4th quarter that would have been reported last month at this time.

    Nobody really seems to give a crap. Business news really sucks. Based on this, I wonder how much of the rest is just as poor?

  35. dead hobo says:

    Re the range above:

    I assumed that GS used Dec 2008 as a kitchen sink, putting as much garbage as possible in Dec 2008. This would goose the current quarter’s earnings to as high as possible. Thus, taking a percent to total of this quarter eps would put GS 4 month eps in the best possible light, as opposed to simple addition which may or may not be accurate. It’s probably overthinking the issue. Which appears to be 180 degrees away from the typical business analyst who is paid to notice such things and report them. Those nimrods appeared to blather about nonsense, according to the transcript.

  36. Deflator Mouse says:

    In other news: reckless, rogue regime acquires enough uranium to build an atomic bomb:


  37. DM RTA says:


    I often read your posts and come to read the comments and get distracted by all the detail in the comments. Good stuff here.
    But before it gets away, this kind of reporting is just not being done by the old media market. Your check and balance in the system is adding balance where so much is out of balance; and while we can all go along knowing this place a great resource, right now, it is an island of level thinking that the headline world is determined to ignore.
    Even if you skip the egregious omissions, the banks would hope (I suppose) that the carry trade will restart the boom. Just a few minutes of clear thought makes that seem like dreaming. it took the carry trade on 30-40X leverage to get to the peak in 2007.
    For a correction to do its magic the market has to actually correct the crap clear out of the market. Right now it sure seems like a lot of crap is working its way back in.

  38. BSNEATH says:

    Quote of the day:

    “Goldman is “one of the major beneficiaries of our tax payer dollars and the great irony is in an alternate universe, the quarter in which Goldman’s reported earnings were twice street expectations would have been the quarter in which it declared bankruptcy,” said Dan Greenhaus, an equity analyst at Miller Tabak & Co.”

  39. Pool Shark says:

    Options Pain shows GS likely going to 100 by Friday:


  40. SWMOD52 says:

    It’s really getting hard to distinguish re-runs of the Sapranos and the financial news.

  41. rubber_factory says:

    Chutzpah? Isn’t that some sort of wheat product?

  42. rktbrkr says:

    “figures don’t lie, but liars figure” seems to be a good summation of this incredibly fortuitous time shift!

  43. moneyneversleepsblog says:

    it turns out they announced this little change in their annual report filed a few months ago, nobody seemed to catch it at the time… amazing!

    more here: http://moneyneversleepsblog.blogspot.com/2009/04/goldman-goose.html

  44. AmenRa says:

    Reggie Middleton on Goldman Sachs earnings has a good breakdown of GS earnings and how they have more risk than people expect.

  45. eren says:

    Pool Shark:
    you’ve got too much mercury in your body. kidding.

    thanks for the optionpain. I was doing very same charts the long way. it made my life so easier.

  46. Golis says:

    1) GS reported after the close on 04/13, stock was down 11.5% from close to close on 04/14. The talking heads and major media sources put this on the dilution of the $5bn offering or the fact that the stock had doubled since the march lows. Whatever we want to believe was the cause, the market acted appropriately.
    2) The only thing I hate more than IB cartel and it’s control of the corporate world, is the fact that people don’t do their own work, read the press releases and filings and figure this stuff out themselves. It’s only your own fault if you didn’t do the work to see this. People love to blame their own lack of hard work and intelligence on others. Doing the work is 90% of the game when it comes to investing.

  47. Transor Z says:

    Today’s op-ed page in WSJ has a response to GS’s letter:

  48. FromLori says:

    Fantastic piece!! All Hail Barry for putting out the truth for more information on the $$$ size of the problem…


  49. pk7689 says:

    Actually, there is a very good (and simple) reason for the change. Goldman is now a bank holding company. The Federal Reserve is requiring them to sync their quarter with all the other BHCs.

    The real issue is that most of the main-line financial press is once-again failing their duty to the public by ignoring this.

  50. pk7689 says:

    By “this”, I of course mean the missing $-1 billion dollar month. Of course, this is yet another reason that earnings means nothing for banks in this environment: it is all about the balance sheet.

  51. FrancoisT says:

    “Alexis Glick gave Goldman a fantastic blow-job on Money for Breakfast today. No sooner had she wiped her lips…”

    It’d be more accurate to say: “No sooner had she swallowed…”

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