Goldman Sachs Chairman Lloyd Blankfein thinks he sees the bottom.
"Patient capital," that is, value investors, are now buying distressed assets, says Blankfein.
Goldman's recent acquisition of SIV Portfolio, known initially as Cheyne Finance, reflects the Wall Street firm's belief that a bottom has been reached, or at least is close.
SIV, a $7 billion structured investment vehicle with headquarters in London, collapsed in August. Goldman's purchase of the hedge fund portfolio for a restructuring demonstrates a growing optimism at the Wall Street firm.
As part of the restructuring plan, a portion of Cheyne's assets will be auctioned, and some preferred creditors may recover some of their debt.
Additional acquisition and restructuring of structured investment vehicles could be on Goldman's drawing board, according to the Financial Times.
Failed SIVs now in Goldman's sights, the paper said, include Golden Key, Mainsail, Whistlejacket and Rhinebridge, all of which were managed by large banks.
Sales of mortgage portfolios would also indicate that the market is at or near the bottom, says Goldman's chief financial officer, David Viniar.
Goldman is the first leading — and profitable — giant investment bank to break the ice with the big Cheyne purchase. Other companies could soon follow suit.
Additional such moves would have to occur to confirm that a come back was beginning to develop, Viniar points out.
"You need to see more of them [mortgage portfolio purchases] to think we're at the bottom," he says.
Major financial industry players will be watching the results of Goldman's purchase of Cheyne, among the largest of such SIVs.
Although Goldman wrote down almost $800 million in leveraged loan losses and sold about $100 billion in assets, the firm's quarterly net of $2.09 billion surpassed forecasts.
Earnings, however, were down 17 percent year-to-date. Net revenues from currency, commodities and fixed income operations were down 29 percent to $2.38 billion.
Still, Goldman is profitable, is performing better than most of the financial sector, and it remains the only major Wall Street firm to avoid a ruinous credit-crisis hit.
Total financial sector write-downs on the value of rotten mortgage investments is calculated anywhere from $380 billion to $1.3 trillion. So how did Goldman survive this disaster with a relatively minor, $800 million bruise?
Smart management, avoidance of excessive risk, and strategic hedging were in large part responsible for Goldman's survival.
And that's why the financial sector may soon take its clue from the smartly-managed Goldman, both in its perception that the bottom has been hit or is nearby, and in its acquisition of an SIV which may be only the first of others to be acquired.
Despite Goldman's apparent bet on a soon to be coming turnaround, Viniar was prudently cautious in his recent remarks to The Wall Street Journal.
"The markets are better today than they were three months ago," Viniar said. "But we don't know if they're going to better tomorrow. Our resting state is worried."
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