Larger Risks = Bigger Profits At GS

Say it with me!

That's how it works on Wall Street.

Say it.

You cant make real/serious money/loot on Wall Street if you don't exponentially take up the risk/leverage.

Lets take a look at Goldman's 2ND Quarter. Remember their 1st Quarter was also very good when they ratcheted up their risk and leverage then.

I find these figures amusing to the point of being almost numb.

Q2 Versus Q1 Comparisons.

Equity Underwriting: $736 Million vs $48 Million
Equity Trading: $2.157 Billion vs. $1.027 Billion
Trading + Principal Inv: $9.322 Billion vs. $5.706 Billion
ICBC: $948 Million vs ($151M)

All in all, an obscene beat.

A Vulgar Display Of Power.

Looking closely at the earnings release, you will notice that Value At Risk (VAR) was a record for the quarter at $245 Million, meaning that worse case on any given day, GS can stand to lose $245 Million only. This figure is $5 Million higher then it was in Q1. I assure you that this figure is probably closer to $400 Million, as this figure is always fudged.

As you can imagine Goldman's compensation will truly be epically breathtaking.

The Joy Of Sachs

$6.65 Billion for the quarter, $4.712 Billion for Q1, annualized this is $22.7 Billion, divided by 29,400 employees, means an average comp of $772,925/employee.

This company would be throwing quarters around like man hole covers on Wall Street if it wasn't for the implicit and explicit guarantee from the Government.

SHOW ME THE RISK!....I Mean Money.

But whats interesting is the $245MM VAR figure, Its like the whole Credit Crisis never existed. The whole planet globally de leveraged except for GS.

I have spoken that liquidity has dried up on Wall Street, and its not coming back, we are in a period of lower liquidity, which always leads to higher risks and lower diversity when things go south.

VAR Methodology and Risk Evaluation.

All I have to say is that $245MM VAR figure doesn't bode well for risk management on Wall Street, just like professional sports teams belong to copy cat leagues, so is Wall Street. We are going to see incredibly more risk taking as competitors need to catch up to Goldman, which is no good for no one on main street.

This is potentially the next major risk factor that of course no one is talking about because they are too busy patting themselves on the back.

But then again...Goldman will find a way to off load any losses onto John Q. Taxpayer.

Has Anything Really Changed?