Goldman Sachs Reports First Ever Loss

A collective sigh of relief was felt by Wall Street this morning when Goldman Sachs (GS, $71.46, up $5.00) reported earnings. Not that they were worth cheering for or anything…the company lost over $2 billion for the quarter. It was Goldman’s first quarterly loss since it went public in 1999. Wall Street was bracing for a loss upwards of $5 billion.

Goldman is one of the last of the four horseman as far as investment banking goes and the company is struggling to reinvent itself as it deals with an ongoing credit crunch. With Lehman Brothers and Bear Stearns gone, Goldman and Morgan Stanley (MS, $14.22, up $0.58) have had their troubles drumming up investment banking business and the M&A (merger and acquisition) activity has dried up.

We also have to take into consideration that this was also Goldman Sachs first quarter as a bank holding company. The company ended up posting a loss of $4.97 a share, compared to a profit of $3.2 billion, or $7 a share last year. My guess is that the Christmas bonuses have been scaled back this year at Goldman’s…

Being a regulated bank makes it harder for Goldman to trade its own funds and the company will need a few quarters to figure things out. Things will improve and Goldman will eventually be the big winner when things finally turn around. Don’t know when that will be, but Goldman will be there.

In the meantime, Goldman is a trading stock just like all the rest of them. We could get a few more points out of the stock if Goldman’s brother, Morgan, reports “better-than-expected” earnings on Wednesday. Bullish option traders are targeting the near-term December 75 calls (GSLO, $1.53, up $0.28) which expire this Friday. It’s a risky trade and there is probably more selling of the calls than buying.

Goldman would technically have to go up another $5 from its current price if someone were going to hold these calls until Friday for them to break even. Of course, they will still be traded with the hope of making 25%-50% before then but the risk is just not worth it. Goldman is also giving a lift to other financial stocks.

Rick Rouse
Rick@OptionsMentoring.com

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