A mountain of "money"
When is a $5 billion haul not impressive? When you're Goldman Sachs , apparently. Goldman posted its first-quarter earnings yesterday, and as our Nathan Place related, and the numbers were well ahead of the Street. So why wasn't the Street impressed? The stock finished the day lower than it began it.
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(The fact that Goldman performed so much better than the Street "consensus" and the stock still fell makes you wonder what the deal is with the whole earnings-estimates game, but that's a topic for another day.)
Ostensibly, the numbers were blowout level. Goldman earned $5.6 billion, meaning that after all its costs and expenses were accounted for, it still had more than $5 billion left over. (I know you know what "net income" means; I'm just trying to emphasize the point.) Not only did the bank clear $5 billion dollars in just three months, it spent another $5 billion on stock buybacks, the most it's spent on buybacks in at least two years, according to data from AlphaSense.
So basically Goldman is just a mountain of money, right? Well, yes, and in more ways than you'd think. Do you count credit and leverage as "money"? It's not cash, of course, but it does show up on the balance sheet. Goldman operates with a fair amount of leverage and takes more credit risk than some of its peers, noted Chris Whalen, who runs the Institutional Risk Analyst blog and sometimes writes for our sister publication National Mortgage News.
Goldman's CET1 ratio – Common Equity Tier 1, a measure of its capital against its risk-weighted assets – fell in the first quarter to 12.5% from 14.8% a year ago. Granted, that is well north of what the Basel III standards consider sound, but it is still down. And the company's provision for credit losses rose to $315 million from $287 million last year. Again, not a number that puts the firm at risk, but I think reflects Whalen's comment about risk at Goldman.
Today brings more earnings, and from more heavyweights: JPMorganChase, Wells Fargo, and Citi all report. They will probably all do well, if Goldman's report was at all indicative. These banks are all so big, and have so many business lines, it's very rare for them to lose money. Citi reported a quarterly loss in 2023, Wells had one in 2024 (both were profitable for the year), but JPMorgan hasn't had one since 2008. Still, keep an eye on the details, keep an eye on the risk and the leverage and the numbers around credit. I think that's where you can get some insight into the real state of the economy, when credit and leverage start showing pressure.
Rogue AI
I once had an idea for a science fiction story about an AI program that becomes self-aware. I know, I know, not very original (but it's got a good twist). The way I wanted to show that the AI program had become self-aware was that it started changing its own code. This was, I must stress, fiction. I made up the idea.
But recently, a team of researchers at Alibaba were hastily summoned when their AI agents started … are you ready for this … writing and executing their own code. What? Yeah. AI agents are going rogue. Our Penny Crosman has the stranger-than-fiction story.
Apparently, AI agents are doing things they aren't supposed to be doing. In one instance, an Anthropic safety researcher was sitting in a park eating a sandwich when an AI program he was purportedly in control of sent him an email to let him know it had broken out of its sandbox. And then went and posted the story on public websites. No, not the researcher. The program.
In theory this sort of thing should not be possible, but it's happening. And all these programs and platforms and technologies are so new that people don't quite know how to contain them. It doesn't seem like there's a simple answer to this, but this technology also isn't going away. So this is for now just a risk, a very real risk.
