Goldman to post profits aided by subprime woes: report | News | Reuters
The super investment bank is expected to post blowout earnings when it reports. Goldman (GS) has been profiting from a call to sell mortgages and reduce its exposure from subprime holdings. good call no doubt but it is still a trading call.
This kind of trading earnings is non recurring and should be valued less than banking fees. Sure GS is run by very smart people and it is rewarding shareholders by impressive returns on their investment. But I am afraid that investors are valuing GS earnings more than it deserves.
GS command a price earning multiple of 8.5 times compared to Morgan Stanley of 5.6 and Deutsche Bank of 6. GS's PE ratio declined slightly from the beginning of the year to its current level, while Morgan was more than halved from 12 at the beginning of the year. The huge premium of Goldman's earnings is not justifiable due to its trading profits. Trading earnings can easily sour and go the other way.
GS is a great bank and very well respected but I think the current valuation of the bank is so high and will set up for losses on any investment at this level.
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