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How Goldman Blew Out the Numbers

Thursday, 20 Sep 2007 | 8:44 AM ET

Goldman, as the Street suspected, blew out the numbers. How did they do it? Through their traditional strength -- trading and principal investments, like FICC and equities.

Fixed income, currency and commodities (FICC) recorded record net revenues of $4.89 billion.

1) Signficiant losses on non-prime loans and securities were "more than offset" by gains on short mortgage positions (Read: "We lost some in subprime, but made it up by trading other mortgage securities.")

2) Despite wider spreads and reduced levels of liquidity in the mortgage market, they made money due to "strong customer-driven activity and favorable market opportunities." (Read: "Customers sold us a lot of stuff in a panic at low prices and we traded the hell out of it.")

Equities: Record net revenues of $3.13 billion: "Strong customer-driven activity and higher volatility." (Read: Prices swung wildly, a lot of panicky people sold stuff to us. We bought low and sold higher.")

Also important here: They took a large loss of $1.71 billion due to "non-investment grade credit origination activities" (Read: Losses on leveraged buyout loans). The point here: While a large loss, even with the writedown they blew the numbers out. By taking an aggressive writedown, they set up for a great fourth quarter.

Read more on Goldman here. For the day's wrap on earnings, go here.

Questions? Comments? tradertalk@cnbc.com

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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