Mostly for kicks, I listened in to Goldman Sach's quarterly earnings call this morning (you can hear a recording here if you'd like). It was a lot of jargon, but one thing came up that was interesting: The bank reported having 15 percent Global Tier 1 Capital -- a relatively high amount of money for an investment bank to keep in the vaults. While reformers like the idea of higher capital requirements, banks and their investors don't, since hanging on to that money hurts profits.Almost immediately, a UBS analyst jumped on the issue, noting that "your leverage is way low and your capital isn't great," going on to note that the firm's Value At Risk (VAR) was low. Basically, he was complaining that Goldman wasn't making enough money -- from a firm that earned $3.46 billion in the first three months of the year. It's just a little taste of the kind of pressure Wall Street firms are under to turn high profits and the pernicious incentives such a system creates, and why banks are so concerned about the potential that the Dodd bill will raise capital requirements and institute leverage limits.
The firm also brought on co-General Counsel Greg Palma to talk about the SEC case. He made a bullish argument for the firm's fair dealings that I am not equipped to evaluate. However, he flubbed the first question, which was how hedge-funder John Paulson, who allegedly helped create a likely-to-fail financial product so he could bet against it, was introduced to the buyers of the financial product who eventually took the loss. (In e-mails, Fabrice Tourre, the Goldman banker who is a target of the suit, called the meetings "surreal.") Palma couldn't recall the introductions, or any of the interactions between Goldman Sachs, the buyers, and Paulson, suggesting that he is, in fact, a lawyer.
-- Tim Fernholz
