Goldman Sachs Not Expecting Big Writedowns
Goldman Sachs Group does not expect to take any significant asset write-downs, its chief executive said Tuesday, even as the rest of Wall Street posts billions in losses related to the ongoing credit crunch.
Asked if he expected significant write downs, CEO Lloyd Blankfein offered a one-word answer: "No."
"We're convinced we have a pretty good grip on these valuations," Blankfein said at the Merrill Lynch Banking & Financial Services Conference.
The comments helped drive up Goldman shares on the New York Stock Exchange.
Blankfein addressed skepticism in the market that Goldman's blowout third-quarter results, which stood in stark contrast to the losses posted by rivals, were the result of unrealistic valuations.
Goldman's portfolio of level 3 assets, which under accounting rules are the least liquid and the hardest to price, includes private equity stakes, real estate and leveraged loans. A separate group of employees, rather than traders, are charged with assigning value to positions, Blankfein said.
If Goldman isn't sure about an estimated value, traders execute test trades to help establish market value that it can apply, he said.
Blankfein also reaffirmed Goldman's bearish view on US mortgage markets, where rising default rates and the lack of buyers has erased much of the value of mortgage securities and derivatives such as collateralized debt obligations.
At the end of the third quarter, when Goldman reaped windfall gains by betting against the mortgage market, it warned that market conditions would get worse. On Tuesday, Blankfein said Goldman continued to bet mortgages would weaken.
"We are net short in these markets," Blankfein said. "We continue to be bearish," he said, noting credit spreads have widened since its results were reported in September.