Despite subprime mortgage woes, Goldman Sachs Group Inc., Morgan Stanley and Lehman Bros. Holdings will report record earnings for 2007, Bloomberg news service reports, citing analysts.
New York-based Goldman also is considered No. 1 in proprietary trading and manages more hedge funds than anyone except JPMorgan Chase & Co., Bloomberg says.Goldman’s third-quarter earnings rose 79% to almost $2.9 billion after the firm, led by CEO Lloyd Blankfein, took positions that rose in value as the price of mortgage-backed securities declined.
Bloomberg claims Goldman may be the most prominent example of the transformation of the securities firm that behaves more like a hedge fund. Similar to a hedge fund, Goldman’s use of capital to take bigger trading risks than its rivals. The firm’s so-called value at risk rose to $139 million in the third quarter, up 51% from a year earlier to the highest ever, according to company reports. The increase was most pronounced in interest rate-related risk, which almost doubled to account for about 40% of the total.
On a similar basis, New York-based Morgan Stanley, the second-biggest U.S. securities firm by market value, said its trading VaR was $87 million in the quarter, up 55% from a year earlier. Lehman, the fourth-biggest firm, said VaR was $96 million, citing “a combination of higher levels across a range of products for the period and a higher level of risk associated with an increase in fixed-income related assets.,” Bloomberg reports.
Other banks are reporting losses, including Merrill Lynch, UBS and Bear Stearns.