Goldman Sachs is to announce
first-quarter profits of nearly $4bn this week – a rise of 50 per cent on the
same period last year – creating fresh controversy for the investment bank
which was accused of fraudulent activity on Friday.
As it became clear that all Wall
Street banks could be forced to hive off their lucrative derivatives businesses
in the wake of fraud charges, Goldman was preparing to announce the
mega-profits 18 months after the banking crisis led to a multi-billion bail out
by tax- payers across the world.
A leading US Senator has
gained White House backing for her proposals which would require investment
banks to divest the parts of their business dealing in risky derivatives such
as the collateralised debt obligation (CDO) structures at the heart of the
allegations against Goldman.
The senior backing for the
controversial bill – which has already drawn scorn from Wall Street lobbyists –
comes as Goldman prepares on Tuesday to report first-quarter pre-tax profits of
as much as $3.8bn based on analysts’ consensus figures, in a move that is
likely to further intensify the strength of public opinion against it.
The investment bank, which on
Friday was charged with securities fraud by the US Securities and Exchange
Commission, is expected to announce the bumper profits on the back of the
strength in its fixed income division – the very division which the fraud
charges stem from.
The bank and London-based bond
trader Fabrice Tourre are accused of misleading investors in relation to a
sub-prime mortgage backed CDO, informing them that hedge fund Paulson & Co.
was participating in the CDO when in fact it was betting against the positions
held within it.
Although Goldman has vehemently
denied the allegations against it – saying they have no basis in fact or in law
– the situation is likely to transform Tuesday’s results from a celebration of
the bank’s success into a further opportunity for public anger against its
operations. Sources close to Goldman said the bank believes it has a strong
case and will fight the SEC action “all the way”.
Anger is again likely to be high on
the agenda as the bank reveals it has set aside just under $5.5bn for pay and
bonuses for the quarter, just less than 50pc of the $11.1bn in revenues Wall
Street analysts expect the bank to have generated in the three months to March.