Golden Days at Goldman Sachs

Jan. 19, 2011 — -- Talk about a dream deferred.

In 2008, during the depths of the financial crisis, when Lehman Brothers had just gone bust and public anger at Wall Street's profligacy seethed unabated, Goldman Sachs did something smart: Its senior partners declined to take cash bonuses and instead took stock options, thereby dodging what surely would have been a painful PR bullet.

At the time, the shares traded at under $79. Though the options could be exercised starting as early as January 2010, the shares could not be sold until 2014. How many options were issued -- and to whom -- got scant notice.

Until now.

An analysis of Goldman's regulatory filings and of internal documents by the New York Times and Footnoted.com revealed Goldman issued 36 million options -- an amount exceeding the total number of options outstanding up to that point and 10 times more than had been given out the year before.

With Goldman's shares trading at around $175, those options constitute a $3.5 billion 'atta-boy. In the long history of birds alighting, no more valuable chicken ever has come home to roost.

The Times' report, published Jan. 19, appeared the same day Goldman released its fourth quarter earnings, down 52 percent from a year ago. Notwithstanding, 2010 was the firm's fourth-best year for profits in its history.

Analyst Benjamin Wallace of Grimes & Co. in Westborough, Mass., said he remains hugely confident of the firm's ability to make money -- and not just for partners.

Goldman's people, he said, are smart. They work hard. As for their methods, "I don't know if they have questionable ethics, but they push the ethics."

He finds it amusing and ironic that the public soon may be up in arms again over the firm's generous compensation -- this time in the form of options, not cash.

Goldman's intentions, he said, likely were the best: "At the time it was done, they were under pressure. The public didn't want a big cash payout. OK, said Goldman, so we'll switch to options."

As for what those options have become worth, Wallace takes the run-up in value as a further sign of the firm's near-infallibility when it comes to making money.

"There you go," he said. "Another one for Goldman."