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Goldman’s golden balls, margin calls for Bear’s bankers

Contrary to expectations, neither Goldman nor Lehman did too badly in Q1. Meanwhile, some of Bear’s bankers face additional pain after borrowing against their stock.

Q1 results at Goldman and Lehman are better than they might have been – given the circumstances.

The Wall Street Journal says analysts were predicting earnings of $2.58 per share at Goldman. In the event, the bank delivered $3.23 per share.

Lehman delivered $0.81 per share, against expectations of $0.72.

It’s a measure of just how bad things have become, however, that expectations were comfortably exceeded despite precipitous declines in profitability – net income was down 53% on Q107 at Goldman, and down 57% at Lehman.

Jobs and bonuses lower for 2008

Goldman actually accumulated 1,350 staff in the last quarter. However, the new bodies all appear to have been at Litton Loan Servicing, a business it acquired in 2007. More ominously, comp and benefit expenses (AKA contributions towards this year’s bonuses) were down 35% on last year.

Lehman’s release reveals it’s eliminated 468 employees in the past three months (including, according to the WSJ, its European credit strategy team), which leaves it with at least another 900 to go given its intention to trim 5% of its workforce. Comp expenses were down 26%.

Spend now, live to regret it at Bear

While bankers at Goldman and Lehman give thanks that things aren’t worse, something nasty seems to be happening to some of Bear’s people on Wall Street – and it’s not the invasion of their offices by an army of Dimonic auditors.

The Financial Times today reports that some of Bear Stearns’ US employees are receiving margin calls related to their holdings of the bank’s stock.

A senior banker (not at Bear) sheds light on the affair for us: “They will have used the restricted stock element of their bonuses as collateral for loans. Now that it’s fallen from $80 to $2 a share they’ll need to stump up more cash to maintain the haircut.”

Fortunately, Graham Rowlands-Hempel, a partner in the compensation team at Linklaters in London, says such things don’t happen this side of the Atlantic. “Most banks insist upon clauses saying you can’t use restricted stock as collateral for a loan. You can see why now.”

Comments (11)

  1. The fiasco doesnt seems to be gettting over,recession fears and slowing down global economy poses some seroius threat. Bearn stearn debacle has created some serious doubts in the minds of investors , never stock lose their value what loses is investors lose in confidence and that is what is happeninig in global markets.
    Some serious riggingor financial window dressing cannot be denied may be its done very smartly in collusion with so called wizards of wall street ,that only time will endorse.
    lack of investor confidence and liquidity are key issues that are dampeninig the market senitments, even if FEDS comes with rate cut the effect will be nascent and the mayhem will continue so be prepared to see some more write offs coming off the shelf.
    Markets will go under a correction of 10-15% from the current level and bottom fishingis not ruled out in such a situation.
    a sincere advice to retail investors Stay away from the markets atleast a month and see what is kept under the wraps ,and i am very empahtic and confident when i am saying , follow the advice and watch how we have been fooled

  2. Agree that retail investors should stay away from the markets, which will continue to fall. The US appears to be in recession as weak economic data have shown over the past few days/weeks. This combined with a weak dollar, high commodity, oil and rising food prices will impact severely the world economy. In addition, liquidity issues at FI’s, which has been the main and worst transmission channel of the crisis, will hinder growth in other Europe as FI’s reduce their lending and hike their lending prices, when lending. In turn, corporates will start getting hit by falling demand (less economic activity + less purchasing power)+ high cost of funds, especially the leveraged ones…leading to possible bankruptcy, and definitely more redundancies, ie less consumer demand, less investments, less tax so less govt spending…and exports/imports falling for everyone. Emerging markets will get hit, just a question of time…remittances to south-america are now at their lowest (previously higher than FDI) and Asia will feel the impact as the 2 largest economies sink in a downward spiral reminiscent of Japan in the early 90s. Is this a plausible scenario? Unfortunately increasingly so..

  3. If people stop panicking then everyone will be in a better shape at the end of this episode. Don’t turn a drama into a crisis.

  4. The value of real assets were inflated by leveraged credit against inflated balance sheets. Until the valuation of real assets falls by, say, 50%, and markets accept that we are not as rich as we imagined, the path out of the recession will be thwarted.

  5. We did a flash survey today on the trading floor and 57% think that Lehman will not survive the “ides of May” – sell in May and go away…

  6. agree with Quant 1! Uk media is exagerating so much, you would think it is the end of the world looking only at the photos..

  7. Equity markets are forward pricing…. A US recession is already priced in the equity markets.
    One should look at valuations (very attractive at the moment), forward earnings (a drop in earnings is already priced in), and monetary policy (the fed rate cuts will only reflect in the eco within 6 to 9 months) when investing in Equities. Based on the above, I’d be buying now.

  8. Has everyone gone crazy – The US and for that matter the rest of the world has undertaken the largest credit expansion in history which fuelled a prolonged period of consumer spending. It has always been the case that credit expansion, always leads to a period of credit contraction -face the facts; the bets made by the financial markets on credit related products have gone bust! The fed bailed out one of the largest IB in the world and people are advising clients to buy financial stocks. 2) The fed is printing dollars faster than the speed of light – ensuring the dollar remains weak for some years to come – pushing the price of oil even higher. Furthermore the US has the lowest saving rate out of the G7 members – and the fed is solving the problem by cutting interest rates to the projected level of 1% and pumping billions of liquidity into the market – in the hope of fuelling another credit boom? The party is over people – drunken sailors jump overboard and those who have steady feet batten down the hatchet and hold on tight this is going to get much worse.

  9. The entire investment banking industry will contract significantly in the coming 12 – 18 months, but so will the financial services industry generally. A few more trophy names will disappear. Those that survive will be stronger, leaner. Good investment bankers need not worry – every market turmoil brings out the best as I have experienced.

    Master of the Universe Reply
  10. You people talk a lot, I short the market.
    Hope you keep your verbiage for morning meetings noboby goes…

  11. there is some truly terrible news to come out in the next few days….i can’t advise you enough to go long puts.

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