naked capitalism

Wellie, we get a bit of cheery news of sorts to take the edge off the sting that Goldman, presumably alive today thanks to the many ministrations of the government, ultimately borne by chumps like you and me, is off again looting making money hand over fist.

It appears that quite a lot of Goldman employees sold stock when it was pretty depressed, between November and March. This is similar to what happened when the firm was still private, and had a very bad year in 1994. Many partners went limited. That did not mean they got to take their money and run; Goldman staged the withdrawals over many years. But it did mean the value of their partnership interest was set at that point in time. Why did that matter? If you expect equity to go down (the firm to lose money), you want your percentage interest applied to the level of equity pre the reduction, not post.

It was a massive vote of no confidence in the future of the firm (that was also the first time Goldman had ever had layoffs). A mini version of the same took place around the turn of the year. What a difference a few months makes.

That is a warning as well as an observation.

On the one hand, the MDs sold $700 million at comparatively low prices. On the other hand, cash was coming in from the TARP and in part going directly to these MDs. Insiders were also selling as the company was peddling shares to the public, Not a pretty fact set. So we will have a few days of fulminating and this too, like all misdeeds by Goldman, will soon pass. In particular, no one will care, since the stock has traded up and it looks like, for once, the chumps did well.

From the Financial Times:

Executives at Goldman Sachs sold almost $700m worth of stock following the collapse of Lehman Brothers last September….

Most of the sales occurred during the period in which the investment bank enjoyed the support of $10bn from the troubled asset relief programme…

The surge in selling among Goldman partners, at a time when the US government had thrown a lifeline to Wall Street, is likely to draw criticism from lawmakers on Capitol Hill. Having survived the crisis, the bank is expected to report strong second-quarter earnings on Tuesday on rebounding trading profits.

For the eight-month period for which figures are available, Goldman partners sold more than $691m in company stock, even as the firm expanded its public float from 395m to 503m shares in several capital raises.

For the comparable period between September 2007 and April 2008, when the average share price was substantially higher, Goldman partners sold about $438m in stock….

Some of the sales could have been motivated by margin calls, which are said to have afflicted a number of Goldman executives who used company stock as collateral for loans….

Goldman agreed to the unusual buy-backs last September to obviate the need for the two officers to sell stock on the open market, the company said in March. “Stock sales would easily have covered their requirements but, given the turbulent market conditions, we and they were concerned that such sales would be misconstrued by the market as indicating a lack of confidence in Goldman Sachs.”

Employee ownership has been an important component of Goldman’s “partnership” culture, a vestige of the investment bank’s history as a privately held firm. It went public in 1999.

But Goldman’s culture was severely tested last year. For the period during which executive sales were allowed, from September 17 to October 24, Goldman partners sold some $250m worth of stock.

A bigger wave of selling occurred during the window between December 2008, after Goldman reported its first quarterly loss as a public company, and mid-February. In that two-month period, when Goldman’s share price sunk to near-historic lows, partners sold more than $280m worth of company stock.