Did Goldman Hide AIG Payout In The “Orphan Month” Of December?


Since it appeared near the top of the list of AIG’s investment bank counterparties, investors — and bloggers, and politicians, and anyone with an interest in the bailout — have been eagerly awaiting the first quarter results of Goldman Sachs. Would the unwind, as rumored, be wholly responsible for a profitable quarter at the investment bank?

It’s hard to say: the nature of accounting doesn’t make it easy to determine these things. But what was interesting about the earnings numbers was the separate set of numbers for December 2008, which the bank dubbed an orphan month. Goldman changed its reporting schedule this year to follow a calendar year from a fiscal year that started in December. While this was initially reported as a sneaky losses-hiding tactic, Morgan Stanley did it too — it’s part of the emergency classification switch that changed the two investment banks into “bank holding companies” and enabled them to borrow cheaply from the Fed last September.

It looks like Goldman booked its big AIG payday during the “orphan month.” This would dovetail with the chief financial officer’s playing down of the AIG impact on its conference call this morning:

First of all, virtually all of those cash flows, which as you know were just cash flows, they had nothing to do with the P/L and in fact, most of them were value-for-value cash flows, most of those took place before the end of the year. The mane [sic: think this means Maiden Lane] lane transactions were unwound before the end of the year. I would say our P/L related to AIG in the first quarter rounded to zero.

While Goldman reported a loss of just over $1 billion in December, the orphan month did offer a brief respite in the steady loss of value of Goldman’s “assets under management,” according to pages 10-12 of its financial statement, which report that its assets under management rose in value by $19 billion in December after dropping off all year — then resumed dropping off again in the first quarter. According to footnote #15, the portfolio gain was due to $6 billion in new capital inflows and a $13 billion appreciation in the market value of its assets. An SEC filing last month reported that Goldman had booked $14 billion from two bailouts related to AIG.

In other news, every other business at Goldman is faring miserably — except its fixed income, currency and commodity trading desks, which posted record earnings. We’ll attempt to parse those over the next few days.

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