Instead of pointing to its own dismal record in helping bring about a financial meltdown through derivatives, Goldman's Cohn blames regulatory uncertainty. However, regulation of derivatives might have saved the American citizens' pensions, savings and even their unions.
Goldman Sachs only needs to adapt, Cohn says. We say, Let the banks suffer some of the pain they inflicted on the average middle- and working-class American. One of their "profound change" objectives should be a return to ethical and moral standards--to do unto others as they would have others do unto them. That is God's work!
If the only penalty that Goldman Sachs has to suffer is uncertainty of the markets, which they brought upon themselves, that would be ample reason for their earning a "Dubious Distinction" award.
There really should be criminal prosecutions at Goldman Sachs; that would be uncertainty we understand and condone.
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Goldman Sachs Model at Risk as Dodd-Frank Pares Trading in Dark
By Michael Serrill - San Francisco Chronicle
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AllianceBernstein Holding LP sponsored the conference for beleaguered Wall Street investors. Goldman's stock was down 20 percent for 2011 at the time, Bloomberg Markets magazine reports in its September issue.
Even before the audience got its chance to throw questions at the Goldman executives, Bernstein analyst Brad Hintz, who introduced them, took a shot, according to a recording of the proceedings on Goldman's website.
"The market is very suspicious at this point," he said, adding that what investors feared most was that new regulations coming out of Washington and Basel, Switzerland, would do lasting damage to Goldman's franchise.
"Goldman stock has been crushed," Hintz said, adding a touch of personal pain. "I have an 'outperform,' and frankly, it hasn't worked so far."
Cohn had come prepared.
"It is not surprising that the potential impact of regulation on the structure of the capital markets and the implications to financial institutions loom large in investors' minds," he said.
Then he set out to convince skeptics that the stock's drop was an investor perception issue, not a reflection of a diminished future for Goldman. He said a changed marketplace could still be a fruitful one for firms that are fast on their feet.
"Our ability to adapt has remained consistent," he said.
Cohn didn't say it would be easy. New rules and roiled markets are turning Goldman's world upside down. In October 2007, its stock sold for $236. On Aug. 1, it cost $134.15. Revenue was down to $39 billion last year from $46 billion in 2007, while profit fell to $8.4 billion from $11.6 billion.
The bad news didn't stop when Goldman issued its second- quarter earnings report on July 19. Revenue dropped 39 percent, to $7.28 billion, from the same period a year earlier. Net income was $1.09 billion, less than half the $2.3 billion the bank earned in the second quarter of 2007.
Fiona Swaffield, a bank analyst at RBC Capital Markets in London, estimates that new regulations are likely to push Goldman's pretax profit 20 percent lower than it would have been without the new rules, which are being formulated by Washington agencies under the 2010 Dodd-Frank law and by the Bank for International Settlements in Basel.
If Goldman is going to maintain its status as one of the world's most profitable investment banks, it will have to undergo profound changes, Hintz says. The bank has already closed down two of its trading desks to comply with the Volcker rule, the section of Dodd-Frank that prohibits proprietary trading and limits direct investment in hedge and private-equity funds.
The bank is also preparing to revamp its over-the-counter derivatives business, which under Dodd-Frank must be moved onto exchanges and into clearinghouses. And under the new BIS rules, called Basel III, Goldman will be required to increase the equity capital it holds against its risk-weighted assets to as much as 9.5 percent by 2019 from the roughly 8 percent it held in mid- July.
In the first quarter, Goldman still held $11.9 billion in private-equity and hedge-fund investments, which Dodd-Frank restricts to 3 percent of a bank's equity capital.
"These are funds Goldman will have to wind down under the Volcker rule," Swaffield says.
Goldman sees technology, including new, so-called low-touch digitized trading systems, as the savior of its derivatives businesses, says analyst Richard X. Bove at Stamford, Connecticut-based Rochdale Securities LLC.
"They are looking to use tech to lower the cost of transactions to levels competitors can't reach and then to price off that low-cost base to attract much higher volumes," Bove says.
The firm's other strategy for keeping revenue and profits high is to "chase GDP," as he said at the conference, by waving the Goldman flag in hot global markets, including the BRIC countries: Brazil, Russia, India and China.