Wednesday, July 11, 2012

Bethany McLean on Goldman Sachs

Bethany McLean, Vanity Fair contributing editor, explains why Goldman investors may soon become the company's biggest critics now that the stock is down 30% over the past year and trades for 0.7 times book value.

From her column Should Goldman Sachs go out of business:
One possibility is that the black-box nature of Goldman Sachs is no longer acceptable to investors, in which case Goldman could work to make itself more transparent - a Lucite box!

On the opportunity:
Goldman executives have argued that even if Europe - European banks in particular - do need to delever, there could be a silver lining, which is that companies in Europe, which traditionally have relied upon loans from banks, will now instead sell debt in the capital markets, thereby spelling opportunity for firms like Goldman. There's also an argument that while Goldman's return on equity of 12 percent in the first quarter (which, in fairness, was a big improvement on the 3.7 percent Goldman posted in 2011) is a fraction of the stunning 40 percent returns it posted at the peak, a 12 percent return on equity, if sustainable, is not so terrible in a zero-interest-rate world.

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