The rebound in Goldman Sachs shares — up 54% overnight with Warren Buffett said to be well pleased — is one of the better Wall Street ‘cons’ of recent times.

You see, Goldman has invented the ‘orphan month’ which is what you get when you change the balance date for your reporting periods and conveniently exclude an embarrassing $US1.3 billion pre-tax loss.

Oops, as they say in the comedy classics, missed it by ‘that’ much!

Yes, the $US1.8 billion in net earnings for the quarter ending March 27 was a very solid figure: no wonder the market snapped up the $US5 billion in new shares the company placed to raise cash to pay out the $US10 billion of Government aid from last year.

But assuming no changes in the markets, the bank would have only earned around $US500 to $US600 million, which would have been better than the huge loss in the quarter to February 29, 2008.

The result was arrived at in typical ‘investment banking’ style (Goldman Sachs is now a commercial bank, like Citigroup, not an investment bank, as the ABC’s AM described it this morning).

Goldman Sachs switched to a calendar year financial year instead of ending it in November, as it did last year. That meant the first quarter ended on March 27, instead of the end of February last year.

So, the latest quarter should have been a four month period, to be strictly accurate, but December and that embarrassing $US1.3 billion loss was restated back into the 2008 financial year and forgotten as ‘The Past”.

Here’s the results, the breakdown in quarterly earnings is on Page 6 of the release. Notice how December isn’t mentioned at all.

Despite the joy on Wall Street (the Crunch is over, long live the bonus!) Goldman’s results do not suggest we are returning to the glory days pre crunch.

Apart from the convenient change of reporting date, the results were boosted by a very strong trading performance in fixed income, currency and commodities.

As explained in yesterday’s Crikey, cheap government funding and a steep yield curve helped, as did having its rivals on the knees.

This will not occur again to the same degree: Its corporate advisory, equities and asset management businesses shed revenues and earnings and look like continuing that way. ew bank regulations have to be contended with, and there’s bound to be a spate of legal actions over some of the failures of the crunch.

And you’d have to argue that Goldman Sachs still doesn’t understand the changed rules for bankers. Even though around 12% of staff (one in eight) left in the past 12 months, the bank’s compensation and benefits in the first quarter was $US4.7 billion, 18% higher than the year before.

Goldman Sachs, it might remembered, juggled its 4th quarter figures for the period to November to produce a 1% tax bill, which helped the bottom line. This quarter, the tax bill was 31% because it made money in higher tax ‘geographic” regions.

The French has a phrase for all of this: the more things change, the more they stay the same.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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