Leave it to Goldman Sachs (GS) to turn an economic calamity into a money making opportunity.
For the past few months, the U.S.'s largest banks have been scrambling to prove to investors that Europe's debt crisis won't damage them. On Thursday morning, Goldman president Gary Cohn told a group of investors that not only is he not worried, but he thinks the potential financial crisis in Europe could be a boost to his bank's bottom line.
Cohn said he was optimistic that his firm's trading desk could turn a profit if Europe's woes turn worse. He said Goldman is already starting to pick up clients from its now weaker European rivals. What's more, Cohn says Goldman could benefit from the fact that Europe's banks may be forced to sell off at least a trillion in assets due to their financial distress. "Our trading desk can make money in any environment," said Cohn. "We are uniquely positioned to intermediate these [the European bank's] asset sales and distribute these investment opportunities to our clients."
If Goldman does turn a profit from the Euro's demise, it could add new fodder for the firm's critics. Goldman gained the nickname Vampire Squid, in part, because it generated huge trading gains in the wake of the financial crisis. The firm has already come under attack in Europe for selling derivatives to Greece that may have helped the country mask its financial problems.
While it's not clear Goldman is betting against the Euro, the firm does appear to be preparing for its break-up. Cohn said Goldman has spent a lot of time going over its trading contracts to determine in part what if they trading partners have the ability to pay in different currencies if the Euro dissappears. "We have been working to find out if we could be paid in drachma or lira," says Cohn. "It's a big issue."
According to Goldman's most recent financial statements, in the first three months of the year the bank cut back its exposure to the governments of Greece, Ireland, Portugal and Spain. Goldman however significantly increased its holdings of Italian debt. As of the end of the first quarter, Goldman owned $2.5 billion in debt backed by the government of Italy. That's up from just $210 million at the end of 2011.
"We have dramatically reduced our exposure to all Europe peripherals," said Cohn. "We will continue to reduce that exposure."