Goldman's Secret to Success a Mystery

Goldman Sachs has made it through the financial crisis with its reputation largely intact, but trying to figure out the secret of the bank's success remains as difficult as ever.
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Goldman Sachs

(GS) - Get Report

has made it through the financial crisis with its reputation largely intact, but trying to figure out the secret of the bank's success remains as difficult as ever.

Goldman was among the first large U.S. banks to indicate its desire to repay the $10 billion preferred equity stake it got from the U.S. government last year, and is now said to have formally applied to regulators for permission to do so.

After a highly unusual money-losing fourth quarter, Goldman had stellar first-quarter earnings results, largely on the back of strong results in a division it calls fixed income currencies and commodities (FICC).

Other banks , including

Bank of America

(BAC) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

,

Morgan Stanley

(MS) - Get Report

and

Citigroup

(C) - Get Report

had strong results in FICC, but Goldman stood out with $6.6 billion in revenues, shattering the bank's previous record by 34%.

During Goldman's earnings call, Credit Suisse analyst Howard Chen asked Goldman CFO David Viniar about the sustainability of revenues in FICC.

Viniar gave the right answer: "You know me well enough, and everyone knows me well enough to know that I would never use the words 'sustainability' and 'revenues' in the same sentence. Our revenues kind of start every day."

However, he then pointed out that revenues were evenly spread throughout all the different business segments and that Goldman's FICC division has performed well in a variety of cycles.

In other words, they won't tell us how they did it, but they are consistent and they always do it. And Goldman expects investors to accept that on little more than blind faith.

"David Viniar's comments speak for themself," says a Goldman spokesman.

Rochdale Securities analyst Richard Bove says Goldman consistently beats its competition because the bank invests more money in a more focused way on trading technology than they do.

"Goldman is just better, because they do it right," Bove says. "The people they put into the system have higher IQs, come through a much more vigorous training system -- I mean who the hell trains people at Citigroup?"

This is all fine. Except that some day, very suddenly, it may not be fine. Goldman may lose its ability to recruit top traders and top IT people. Maybe that is happening already, but we won't know it until suddenly, seemingly inexplicably, Goldman does not come up with trading results that are superior to all of its competitors.

If that day comes, things could get very ugly very quickly for the bank's shareholders.