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Bank Of America Amazed By Goldman's "Unmatched Risk-Taking/Risk-Management Skills"

Tyler Durden's picture




 
The lately abnormally notorious Goldman Sachs received a little pat on the back today compliments of Bank Of America and its analyst Guy Moszkowski, who in a report published this morning announced his expectation of an "unexpected" Q2 surprise (quick, someone find the next big counterparty that Goldman shorted and also has several tens of billions in collateral exposure with the 85 Broad oracles) and also anticipates forecasts to rise. Maybe now that Goldman's fate allegedly is in the hands of a few good hackers, Guy may want to redo his hypothesis. But I digress. From the report:

Investment thesis: GS is arguably the most well-respected inv. bank, especially after deftly navigating the 07-08 credit crisis. We view GS as the best-diversified, most global franchise in the industry, with ample intl. growth prospects. The firm has consolidated its toptier position among Capital Markets firms, enabling it to generate strong through-cycle ROEs and book value growth.

Wow, not sure even where to start with Guy's opening salvo. If it was made a little clearer that a "inv. bank" has the implicit backing of the U.S. government for any and every blunder it may make, and the potentially explicit backing of all the collocation facilities at the 60 Hudson carrier hotel, maybe Guy's fascination would be a little more subdued. As to the "most well-respected" bit... well, Zero Hedge won't touch that topic. But Guy may consider adjusting the boilerplate investment thesis shortly.  
 
More from the report:

2Q Trading conditions strong, U/W recovered markedly

Trading conditions remained favorable through 2Q. Buoyed by stable volumes as spreads tightened, fixed income markets continued to see wide bid/ask spreads on muted competition. Thus, we’ve again raised Trading forecasts. Also, cont’d asset price improvement (ICBC, equities and debt), offset by likely real estate losses, should drive increased Principal revs. In IB, M&A remained weak, but Equity and Debt U/W rallied significantly. 2Q could be a record quarter for GS in Equity U/W, though volume data is skewed by their own capital raises.
 
Comp. leverage could drive significant 4Q earnings boost

At current accrual rate (and assuming rev forecasts correct), GS appears on track to accrue significantly more comp than ‘08, despite little change in headcount. Even with 4Q accrual of 25%, comp would still be up 64% YoY by our estimate. In this scenario, ‘09E would reach $16.30, with ROE of 16%. 

 

Buy: PO to $175 (from $144); 16%+ ROE achievable
 
PO increase reflects ‘09E/’10E ROE of 16%+, bringing BVPS to over $113 by the end of 2009 and $122 in 12-months. Based on this, ROE suggests 1.6x BV multiple or ~$175, after 10% “haircut” to account for market fluctuations. GS has consolidated its top-tier position among Capital Markets firms, combining front-rank Banking franchise with unmatched risk-taking/risk-management skills in a market that strongly rewards these because of decline in competitor risk appetite. Risk/reward appealing, with upside potential to 1.6x BV, downside unlikely below 1.1x BV.

Decline in competitor risk appetite? How about outright decline in competitors? And how about the unwillingness of competitors to directly engage GS in core fields in which the firm seems to have achieved a barrier to entry with a blessing as if from above? What is so difficult about calling up two firms to gauge investor interest in a REIT offering and then following through with one, if all it takes is a simple analyst upgrade and a brief stay on the Goldman Conviction Buy List(sorry, bad example, Merrill recently figured out just how simple it is to beat Goldman in its, allegedly, own game)... But fixed income sales and trading? At 40 bps bid/offer spreads for a 300 bps trading CDS or 1.5 points pick on a bond, a blind monkey with Down's syndrome would be rolling in cash. As for being a Supplemental Liquidity Provider? Well, why take the free money from Goldman and from the zillions in program traders who scalp each other for nickels per trade. Who would possibly want to do that. Not like being an SLP provides one with a plethora of implicit and explicit additional benefits.
 
No, all rhetoric aside, investors would be stupid not to buy into the Goldman hype - pretty soon it will be the only investment bank standing if LB's grand plan has its way. And there is nothing on the horizon to indicate otherwise. As for Goldman employees who are set to make a record $1 million in average comp this year - we all feel bad for them, knowing how hard they work scouring the web for pieces of rogue code or kibitzing on various websites checking on minute by minute updates of whether anyone has the temerity to write something negative about the mothership.
 
S? why stop at $175 - go for a cool round number, like $1,000 or $1,000,000/ share. At the current rate of dollar devaluation the latter has a very high probability of being achieved, nevermind that the investee would likely be happy to facilitate said devaluation as much as it can... And if oil were to somehow hit the same price/barrel, so much the batter. LB et al will be happy to show up at next year's investor meeting and discuss how Goldman managed to generate an ROI of infinity +1. Zero Hedge, with its 1 share of GS will be proudly there, clapping and cheering in a roofied daze, pre-vaseline administration, clutching the Goldman Sachs Ethics Manual, which has long ago replaced the Bible, Koran, Torra, the Bhagavad-Gita, and the Sermont on the Mount, among others, as our bedside soul cleansing material. Of course, if in the meantime the green shoots turn out to be green swans and the economy crumbles, one can bet that Goldman will be there, generating a cool 20% ROE.
 

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Thu, 07/09/2009 - 14:14 | 5596 ghostfaceinvestah
ghostfaceinvestah's picture

Easily one of your best.

Does Guy mention the risk of an angry mob with tattered clothes and pitchforks burning down the GS headquarters in his report?  just wondering.

 

Thu, 07/09/2009 - 15:55 | 5628 VegasBD
VegasBD's picture

If a mob actually accumulated in front of their bldg one day....id be on the next flight out no questions asked

Thu, 07/09/2009 - 14:21 | 5598 Jacks Complete ...
Jacks Complete Lack of Surprise's picture

Sup, Tyler.

 

Nice new digs you got here, glad to see you are still trapped keeping up with the Jones. 

If it makes you feel any better, I'll read this on the shitter. From your lips to my colon to the bowl of humanity.

Keep pushing buttons, but I'll drop a dime on you tomorrow since you gave me the keys to the flat.

 

Got the ingredients for a metasalad being cooked up over at GS.

 

Btw, your captcha is a disgrace to even basic math skills. 

Thu, 07/09/2009 - 15:04 | 5610 the battle
the battle's picture

wow, that was a pretty gay statement.  good for you, faggot.

Thu, 07/09/2009 - 16:00 | 5629 eggonomical (not verified)
eggonomical's picture

Never mind General Motors everyone. Just a quick government takeover. Just real quick in-and-out of the courts. Just wipe out the bondholders and off we go. No big deal. Reckless government spending is not an American value.
good articles:http://is.gd/15JkN

 

Thu, 07/09/2009 - 16:32 | 5644 Anonymous
Anonymous's picture

Jack,

Tonight when you lay you head to sleep may you dreams haunt you, and I know they will.

Thu, 07/09/2009 - 14:22 | 5599 Anonymous
Anonymous's picture

those captcha needs to be improved! as sometimes the field lenght does not allow for the right answer, for example:
< > - (-17) = eleven
the answer is minus 28, but I can only put 2 fields, which makes it impossible to respond correctly

Thu, 07/09/2009 - 14:36 | 5600 the battle
the battle's picture

Is my screen f@cked up?  Did I just 1.3 mil SPY sold, all taken back by 260K (on the 1 min.)?

Thu, 07/09/2009 - 14:42 | 5602 Anonymous
Anonymous's picture

LB is busy front-running clients,
counting code, while the rest
are chanting
I want the red truck!
This is a piece of junk,
I want the red truck!

Thu, 07/09/2009 - 15:00 | 5608 wiskeyrunner
wiskeyrunner's picture

Jack,

 

We gonna deal with you, our American motorcycle gangs are reved up.

Thu, 07/09/2009 - 15:02 | 5609 Anonymous
Anonymous's picture

Automatic algorithmic trading done at near-zero signal speed [latency] can beat [front-run] others with mere low-latency E.g., data infeed from incomplete, in-progress order transactions from low-latency trading platforms can be processed to order-completion with lower-latency...automatically...so that the "front-running" is not knowable and thus never happened to any human's knowledge. Front-running? I'm shocked! Shocked, I tell you!

Front-running is only 1 type of "insider knowledge" transactions. The insider-trader, himself inside or not, only needs the knowledge of an insider.

"Insider"-based actions are impossible to monitor, much less stop...if you and a trusted partner are only mildly clever...and I recall many floor/broker traders in the 1960's who were easily bright enough to thrive at it...and did...and were not bothered by a max 6-month trading suspension if they were caught...after at least 1 warning...and after their first $100k in-pocket [1960's!].

"Insider" activity is discouraged and kept very quiet to enable the game of the few to steal from the many. The mis-educated makers of that game use public-relations/control-the-field type of handling to keep it going.

Insider-trading is one "sort of gambling in 'clever strokes' which constitutes the very essence of theft, swindling and all sorts of similar anti-social deeds.” [PKropotkin]

Thu, 07/09/2009 - 15:39 | 5622 Anonymous
Anonymous's picture

I follow you on all this "conspiracy" and its all great to speculate and such. But seriously, why the hate for Goldman?

Thu, 07/09/2009 - 16:28 | 5641 Anonymous
Anonymous's picture

What does Goldman do for this country and it’s citizens?

Thu, 07/09/2009 - 17:39 | 5667 Anonymous
Anonymous's picture

GoldmanSachs is a parasite, the FaceHugger in ALIEN.

Its blood funnel must be separated from the Republic.

Fri, 07/10/2009 - 08:16 | 5890 Anonymous
Anonymous's picture

I’m still waiting for an answer. What does Goldman do that benefits this country and it’s citizens.

Thu, 07/09/2009 - 15:53 | 5626 Anonymous
Anonymous's picture

Aimed with this info any suggestion on how to profit from this?

Thu, 07/09/2009 - 16:59 | 5656 Comrade de Chaos
Comrade de Chaos's picture

Has the Guy M_sky mentioned "unmatched political connection and regulatory cover" as well?

P.S> #5598 must be a GS intern, the difference between those & CNBC interns is rather amusing. The arrogance, the sheer belief in their invincibility....makes them the text book narcissism definition.

Thu, 07/09/2009 - 17:11 | 5657 Miles Kendig
Miles Kendig's picture

YeeHaw!  Fire that trusty Colt into the air and get the herd a rolling!

Thu, 07/09/2009 - 22:53 | 5820 ronin
ronin's picture

Jacks Complete,

 

I know who you are and where you live.  see ya round brotha...

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