Goldman Sachs Group may have posted a better-than-expected quarterly earnings, but its performance in November was "horrible," according to a senior executive at the firm.
In fact, the company's performance in the last two weeks were probably among the worst in the firm's history, CNBC has learned.
Bill Haber
Hundred Dollar
"September was not good, October saw good business transaction, and November was very difficult," said Lucas van Praag, Goldman's chief spokesman.
A senior Goldman executive described November as "pretty horrible" and confirmed that the last two weeks of the month "were probably" the worse in the firm's history.
Wall Street sources say the firm's lousy November is related to problems involving the credit markets, possibly losses on its bond-trading desk related to risky mortgage-backed securities or being forced to write down losses from these bonds already on its books.
The upshot, according to Wall Street sources, is two fold: First, Goldman isn't as invincible as everyone believes, and that the credit crisis, despite predictions of a pending recovery, may not be over.
To put the news into perspective, Goldman has received accolades about shorting the mortgage-backed markets while other firms were long--meaning that they either held those securities after underwriting big mortgage-backed bond deals and failing to unload to investors, or betted wrong on their proprietary trading desks.
CNBC has learned that Merrill Lynchmay have to add another $6 billion of losses on the $8.4 billion loss write down it has previously announced because of its exposure to such securities.
Morgan Stanley, which reports fourth-quarter earnings on Wednesday may have to add another $6 billion, according to market sources, on the $3.7 billion it has already announced.
Goldman's poor ending to its fourth quarter may have contributed to its warning to analysts today when it said that while it is optimistic about the future, it believes there could be short-term weaknesses in the markets.
During the fourth quarter, Goldman's earnings rose 2 percent, capping a record year. However, the company's shares are trading lower due on concerns about its cautious outlook and what may have prompted it to warn about the challenges it is facing.
This, combined with Lehman Brothers Holdings earnings reporting, which showed a 12 percent decline in earnings, is casting a pall on other financial stocks. Morgan Stanley, which reports its results Wednesday, saw its shares fall 3 percent in morning trade.