The Press, NYT’s Norris Excepted, Gives Goldman a Pass

News of Goldman Sachs’s good first quarter is all over the business press today, as it should be.

But the turn in its fortunes was due in no small part to an accounting quirk: The company switched its earnings calendar to a traditional quarterly schedule, leaving December an “orphan month”—one that just so happened to be very unprofitable.

Floyd Norris tipped his readers off to this on his New York Times blog today.

So I thought it would be interesting to analyze how the majors handled this little hiccup, as well as the broader Goldman earnings coverage. Turns out—not so well.

The Wall Street Journal fared worst of the four business outlets I looked at—at least on the “orphan” issue. The headline on its C1 earnings story is pretty rah rah:

Goldman Flexes Its Profit Muscle

And the loss-heavy “orphan month” of December? Relegated to one sentence, and it’s the dead last one—with zero explanation:

Goldman broke out the results from the stub December period separately, reporting a loss of $780 million, or $2.15 cents a share.

Bloomberg was no better. Here’s its story’s December reporting:

The bank also said yesterday that it lost $780 million, or $2.15 a share, in the month of December, before the start of its new fiscal year.

The Times’s story was just a bit better than those two, giving the matter a whole paragraph!

While Goldman reported a strong first quarter, it also reported a loss of $1 billion in the month of December, underscoring how quickly its fortunes can change. That month was reported on its own because Goldman is changing the timing of its fiscal year by a month, to match the calendar year. The loss was in part related to write-downs on high-yield bonds, as well as deterioration in real estate.

At least it has an explanation for why the company, which is an Audit funder, did such a thing.

Finally, the Financial Times only gives a paragraph, too, but it explained why the “orphan month” happened and explicitly signals to the reader that this, coincidentally or not, helped boost Goldman’s first quarter:

Goldman benefited from a quirk in its reporting schedule. Its fourth quarter ended in November 2008, but after converting to a bank holding company last year, Goldman adopted a calendar-year earnings period starting in 2009. As a result, the company did not have to include December in its first quarter earnings, a month in which it sustained $1.3bn in pre-tax losses.

So why should we care about one lousy month when the last three were so great? Well, it’s pretty simple: The quirk in accounting allowed Goldman to frontload more of its writedowns into that month, betting correctly that it would be overlooked for the headline of a smashing first-quarter profit—which is big news these days, you know.

Norris put this very well this morning:

Goldman Sachs reported a profit of $1.8 billion in the first quarter, and plans to sell $5 billion in stock and get out of the government’s clutches, if it can.

How did it do that? One way was to hide a lot of losses in not-so-plain sight…

The orphan month featured — surprise — lots of write-offs. The pretax loss was $1.3 billion, and the after-tax loss was $780 million.

Norris live-blogged Goldman’s conference call this morning and reports this intriguing sidelight:

Guy Moszkowski of Merrill Lynch wants to know if they made money from the now-famous government-financed American International Group transactions.

The answer is cautious. Most of the impact was in December. For the first quarter, the total A.I.G. effect on earnings was, in round numbers, zero.

Also, compensation rose at Goldman in the first quarter compared to a year ago as revenue and profits increased. That’s even though the company had many fewer workers than it did then.

The WSJ explores that in a separate A1 story:

The 140-year-old firm long has boasted a culture of lucrative compensation. Although overall Goldman pay fell last year, the firm, which has about 30,000 employees, paid 953 people more than $1 million in salary and bonus, according to people familiar with the matter. No one got more than $1 million in cash; much of the pay was through stock grants that vest in the future, these people say. (At Merrill Lynch & Co., which had roughly twice as many employees, 696 executives were paid more than $1 million last year, according to data released by New York Attorney General Andrew Cuomo.) In 2008, the pay of Mr. Blankfein and three top Goldman lieutenants fell 97%, to a total of $9.3 million.

But Bloomberg does better by giving numbers on how much was actually paid out:

This year, the bank set aside $4.71 billion for compensation and benefits, 18 percent more than during the first quarter a year earlier. The expense totaled 50 percent of revenue, up from 48 percent in last year’s first quarter, even as the firm’s workforce shrank 12 percent to 27,989.

And the FT bests that by doing a little simple math in the second of its Goldman stories and getting an eye-opening result (emphasis mine):

The bank raised its total compensation and benefits’ bill to $4.7bn – 18 per cent higher than in the first quarter of 2008. But Goldman now employs 4,000 fewer people so the quarterly pay for its 27,898 employees was, on average, more than $168,000, nearly a quarter higher than a year ago.

That bit of information could have anchored its own story, don’t you think?

“Government billions help Goldman boost pay 25%”

The Times somehow misses the compensation news entirely in its Goldman story.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.