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Goldman 'wheeze' was a requirement, Letter to the Editor, Financial Times by Lucas van Praag

Financial Times - 24 Apr 2009 - By Lucas van Praag
© 2009 The Financial Times Limited. All rights reserved

Sir, William Cohan makes a number of points in his article "Clever wheezes will not mend the banks" (April 23), and one deserves to be addressed. He says there is "sleight of hand" involved in our decision to change our fiscal year-end from November to December. He goes on to say (quite logically) that our first- quarter numbers for the three months ended March 31 2009, did not include our "horrific December results" - into which, he says, we "threw everything but the kitchen sink".

What he ignores is that when we became a bank holding company, we were required to change our year-end to December. We would have preferred to leave it unchanged, but that wasn't an option. We formally announced the change on December 16 2008, and included information about a $850m write-down in December in our 10-K, which was published on January 27 2009.

Our first-quarter earnings release had a full page of information about December. Mr Cohan is a former investment banker and, one would have thought, has some facility with numbers. If he had cared to try to prove his point about throwing everything but the kitchen sink into December, he could have done this simple sum: divide our fourth-quarter numbers by three, and then compare the result with the information we provided for December. If he had felt even more adventurous, he could have applied a 48 per cent compensation to net revenue ratio and "normalised" December's Compensation and Benefits line - that would have given an even greater degree of comparability. Having done this, he would have seen that December's results were broadly in line with the very difficult fourth quarter, but showing signs of improvement.

The rules give firms like us the option of restating prior periods but, since we're not in a seasonal, predictable revenue business, we determined that restating earnings for last year would have been pretty meaningless. If we had, however, arguably the details for December would never have seen the light of day.

Mr Cohan's argument on this subject is a house of cards, but I note that he did manage to convince the Huffington Post of its merits.