GOIH Capital Markets: GS $300 million "paper" gain

It's being reported in the media that GS made a paper profit of $300 million on its hedge fund. However in none of the new articles does it tell how GS made the $300 million.

GOIH Commentary:

We think that GS and CFC were knee deep invested together. As we reported here CFC and GS were trading lockstep during the meltdown. See our previous posts regarding CFC and GS. We believe the $2.0 investment by BAC which momentarily increased the share price of CFC via short covering, was the source of any profit to GS.


We believe GS was on the opposite of the calls that were written against CFC, and benefited once the transaction with BAC was announced after hours. We believed BAC shorted into the rally in CFC and profited as well as the investors who injected the capital into the GS Fund.

That is our take on how the $300 million was made since there is no reported verification on how it was made in the media.

The bank's Global Equity Opportunities fund, into which it injected $2bn of its own money as part of a $3bn bail-out in the middle of last month, recovered strongly after the rescue but still underperformed badly for August as a whole. The paper profit positions Goldman as one of the big beneficiaries of last month's credit squeeze, though the bank is likely to suffer from widening credit spreads and a drop in the value of debt not yet syndicated.

Hank Greenberg, former chairman of AIG, hedge fund Perry Capital, and Eli Broad, the US billionaire, participated along with other investors in the rescue, which involved injecting $3bn into the fund after it lost a third of its value in a week.

Those who took part in the rescue made a return of 15 per cent by the end of the month, while external investors before the bail-out lost 23 per cent in August.
"It is typical of Goldman to find a way to profit from this disaster," said one investor in the fund.