Goldman Sachs: Shareholder Friendly?

Growing up in the business there are names that used to bring up awe. The “agency” was the CIA, perhaps now replaced with the triple shot Navy SEALs. The “firm”, especially while a private partnership, was always Goldman Sachs (GS). Much has changed for Goldman as well including the acceptance of government bailout money.

I have stayed on the sidelines watching the mainstream media and fellow financial bloggers debate Goldman’s recent earnings report and their major move in the form of selling shares to pay back TARP funds.

Many intelligent pieces have been posted so my chime-in is quick. I think many are missing the simplicity of the real issues.

The earnings are sustainable or not. I believe the earnings number is, but not the sources of revenue. Goldman is positioned to bob and weave to find where the profits are better than most.

My focus is the motivation of the stock sale.

Some basics: it dilutes common shareholders. It raises money NOT to build the business. Use of proceeds is not to gain market share or to enter new business lines or markets. In general this makes the share sale a bad investment. But we are not experiencing “in general” times.

The use of proceeds is to pay down TARP debt. The prevailing assumption of premise is to get out from under the government having a say concerning compensation.

The company’s perspective is that they want to hire, retain and grow the best and brightest. They see an opportunity to recruit from competitors, those who can drive the company to excellence during the next business cycle. This could be the best use of proceeds and the single most shareholder friendly thing seen in years, or the least.

The skeptics say this use of proceeds is about greed. It is about big wig Wall Streeters who want their multimillion dollar pay outs. They want their masters of the universe pay scale to match their egos even after “We the People” had to bail them out – and don’t forget the payouts from AIG direct to Goldman.

The answer: to be determined. No one can stop the wheels that are in motion. Market participants and investors of all sizes can vote with their cash. Each can decide to buy and hold Goldman stock, short them or stay away.

For now I am watching from the sidelines.

Comments

[User 305589:]

...to repay tarp? Or maybe not? What if it is all smokes and mirror and actually GS just needs the cash badly to stay alive as it has lost about hundred billions in cash over the past years, despite all the billions in reported 'net income'?
If you look at who worked for GS and now holds what position in the govt and the regulatory bodys then you cannot deny that GS has effectively taken over the US of A. That's very bad for the common man and for the society. But isn't it good to be a shareholder of GS then - if you can't beat them - join them, no?
Wrong! The only ways to make money with GS:

1) be a partner. that's the best. but not easy to get in.
2) lend them money on very harsh terms in the rare moments when they badly need it and HAVE TO ACCEPT your terms (as Buffet did), but do not forget to make certain safety provisions (as Buffet did by fixing a clause that the GS partners must not cash out before him. I am still wondering how nobody really took up this crystal clear sign of utter distrust on the side of WEB)
3) be an employee and try to get as many bonuses.

As a shareholder, you will never really make money . You just shoulder the risks, but the true profits get paid aout to partners and employees.

Apr 20 04:31 AM