One of the biggest internet financial furores this week has been over Goldman’s ‘orphan month’ – December 2008.
The bank changed its 2009 year-end to December, instead of using a fiscal year through March, as it did previously. The change means Goldman’s 2009 first-quarter results consisted of January, February and March instead of the December, January and February contained in its 2008 Q1. The move, according to Goldman, was down to the company’s conversion to a bank holding company in late 2008. Nevertheless, the switch had many commentators frothing at the mouth.
Here for instance is Congressman Alan Grayson on the matter, via the Huffington Post:
Floyd Norris of the New York Times noted that Goldman Sachs used a more prosaic trick having nothing to do with mark to market accounting – the company moved its fiscal year up a month and simply left out its losses from December, which is now known as an ‘orphan month’. Is the rule that says a year has twelve months also open to subjective judgment?
Isolating December allows Goldman to create some pretty good headlines about quarterly earnings but it’s not as if the December information was entirely missing. Page 10 of the bank’s 2009 Q1 earnings statement is pretty clear. The net loss in December was £780m after writedowns including some $1bn on credit activities and $625m in commercial mortgage loans and securities (Footnote 19).
Would Goldman have posted a first-quarter profit if it had included December? It’s hard to say since the bank doesn’t back out monthly figures.
But here’s the point: The accounting’s not ideal but it’s not a Goldman-designed conspiracy to elude the markets. In fact it’s probably less egregious than, say, Wells Fargo’s alleged use of FAS 160 in its Q1 results released last week. Most depressingly, it’s probably irrelevant anyway. Investors simply don’t trust banks’ general accounting — much less their quarterly statements — in the current environment. That is one of the major problems of the credit crunch.
We suspect, however, that since it’s Goldman and it appears to be Goldman Sachs conspiracy week, the outrage is tangentally more frothing.
To that end, we provide you with the following links: Martin A. Armstrong’s “Looking Behind the Curtain: The ‘Real’ Conspiracy‘” — making the internet rounds despite numerous spelling mistakes and the fact that the author is currently in jail for committing fraud – and www.goldmansachs666.com curator Mike Morgan’s late Wednesday conference call here. Opening line:
… I’m a little disappointed there’s only 31 people on the call… I’ll tell you exactly how many people we had register. We had 271 people register. So for me, it’s a real bummer let-down. But I really don’t care, I can turn off the website tomorrow and move on with my life…
Perhaps Goldman conspiracy theorists aren’t as voracious as we thought.
Related links:
The Devil and www.goldmansachs666.com – FT Alphaville
Goldman’s blow-out Q1 figures: Reaction – FT Alphaville
On Wells Fargo and banks’ well-being – FT Alphaville
M2M change = time to buy banks? – FT Alphaville