So, Goldman Sachs (NYSE:GS) announced results yesterday and it was bad news for the doomsayers.
The Results: (Click here for conference call transcripts.)
GS reported net income of $1.51 billion, or $3.23 a share, for the quarter ended Feb. 29, compared to $3.2 billion, or $6.67 a share last year. Revenue decreased 35% to $8.34 billion. Analysts estimates were for earnings of $2.58 a share on revenue of $7.47 billion.
Not great, but, better than expected. When you combine these results with those at Lehman (LEH), they make the Bear Stearns (BSC) situation look more like a management issue rather than a systemic event.
This is not to say that things are going to turn on a dime and begin to rise. It is also not to say there may be other, smaller institutions suffering (Ambac (ABK) ,MBIA (MBI)) and possibly folding. It is to say that a widespread banking run will not happen, and because of that, the system will remain intact. Because of that, we now know there is a light at the end of this tunnel.
Now, where is the light? I think is is closer than it currently looks. Let's not forget, the losses the banks are seeing are unrealized for the most part. This means they are writing down the value of a security because of an assumed market value of it, not because of a tangible deterioration of the assets performance. That is a huge point.
It means that when we can now value these instruments higher, earnings jump, fast.
In every financial "crisis" there is a sacrificial lamb. In this one it was Bear Stearns. Now that the Fed has opened the discount window to not only the banks, but the brokers, the liquidity squeeze that destroyed Bear will not be repeated. Now, poor management may take a smaller institution under, but if that happens, it will not be anywhere near the scale of a Bear Stearns.
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