Goldman stockpiles $164bn for purchases of distressed securities

Goldman Sachs has amassed a war chest of $164bn (€124bn, £110bn) in cash and liquid assets that could be used to buy distressed securities and loans as its rivals clear their balance sheets, Goldman's chief financial officer said yesterday.

David Viniar spoke as the bank completed the sale of $5bn in common stock – at $123 per share – which it plans to use to pay back some $10bn from the government's troubled asset relief programme (Tarp). The sale price represented a 5.5 per cent discount to Monday's close. Goldman shares yesterday were down 6.3 per cent at $121.92 in midday trading in New York.

Speaking a day after Goldman reported $1.81bn in first-quarter earnings, Mr Viniar said the bank's liquid assets, which rose more than $50bn in the first quarter, could also be put to defensive use if the crisis worsened.

Goldman's earnings were helped by a record $6.5bn in revenues in fixed income, commodities and currencies (FICC) activities. It made money taking advantage of the wide difference between buying and selling prices in those markets.

“The environment in the first quarter was such that, you know, there were so many opportunities in truly liquid assets that there was no need to use liquidity to buy illiquid assets and there weren't a lot of good illiquid assets for sale”, Mr Viniar said, adding that strong liquidity made sense “from a defensive and offensive point of view”.

He acknowledged the liquidity position was a drag on earnings and return-on-equity ratios but said in the current environment “prudence is the better path”. He warned that his firm's record- setting FICC performance would be hard to repeat. But he noted overall activity in the capital markets was gaining momentum, pointing to two dozen equity offerings last week and a pair of initial public offerings this week.

In an interview with the Financial Times, Mr Viniar said Goldman wanted to pay back the $10bn in Tarp funds as soon as possible so it could pay bankers, invest money abroad and hire foreign workers without generating criticism it was using taxpayer money for such purposes.