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Goldman Sachs Reveals Fresh Crisis Losses

Francesco Guerrera and Kara Scannell, Financial Times
Friday, 14 Jan 2011 | 3:54 AM ET

Goldman Sachs has revealed details of about $5 billion in investment losses suffered during the crisis for the first time this week, in a move that will deepen the debate over companies’ financial disclosures.

The U.S. Securities and Exchange Commission seal hangs on the facade of its building in Washington, DC.
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The U.S. Securities and Exchange Commission seal hangs on the facade of its building in Washington, DC.

The figures, issued as part of internal reforms aimed at silencing Goldman’s critics, show that the bank suffered $13.5 billion in losses from “investing and lending” with its own funds in 2008.

But Goldman’s regulatory filings and its executives’ comments to investors at the time pointed to about $8.5 billion of losses arising from its investments in debt and equity, as markets were rocked by the turmoil.

The diverging figures, which do not change Goldman’s overall results for 2008, are because of the fact that, like many rivals, the bank did not provide a full breakdown of profits and losses from activities carried out with its own resources.

Goldman broke with that norm this week, adding the new category of “investing and lending” to its results. This was an effort to answer criticism that it puts its interests ahead of its clients’ and to lift some of the secrecy surrounding its business.

The revelation of the 2008 loss on its investments supports Goldman’s argument that it did not profit from the crisis.

Lynn Turner, a former chief accountant for the Securities and Exchange Commission, praised Goldman’s move but called for the SEC to look into the bank’s past disclosures.

“This sets a good example that others should follow,” he said. “But it does raise the question as to why the management did not provide this view back then and whether the SEC are going to do something about this discrepancy.”

Mr Turner said SEC rules required companies to give investors a view, as seen from “the eyes of management”, of their finances: “For such a discrepancy to have arisen, management must have lost an eye.” The SEC and Goldman declined to comment.

People close to the situation said some analysts might have calculated the full extent of the losses on Goldman’s investments by looking at its estimates of losses if markets took a downturn but conceded that the new reporting system provided much more clarity and detail.

Under the old system, Goldman included its own investments under the heading “trading and principal investments”, which included short-term activities carried out on clients’ behalf, making it difficult to distinguish between the two.

Goldman’s disclosures will put pressure on rivals to follow suit at a time when new US legislation – the “Volcker rule” – seeks to curb banks’ “proprietary activities” on their account.

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