Goldman has one of biggest proprietary trading desks in the business and is believed to have been active in many of the markets where the hedge funds have come unstuck.
"They are the biggest hedge fund of them all," said one banker.
Much will depend on whether the tentative markets recovery triggered by the US interest rate cut earlier this month holds up for long enough to bail the firm out of some of its loss-making market positions before the books close on the fourth quarter at the end of next month.
Senior officials at the firm have vigorously denied talk of major losses. Tackled recently on reports that the firm was down by $900m, co-chairman Hank Paulson told a US business publication: "Absolutely, not."
However, such denials have done little to silence doubts inside and outside the firm. Mr Paulson and his co-chairman Jon Corzine flew into London last week in a bid to reassure European partners. They have not entirely succeeded.
Morale has not been helped by the fact that Goldman, like its rivals, is carefully scrutinising each of its business areas and is expected to announce cost-cutting in parts oft he business, probably early next year.
Mr Corzine has told staff that the firm would be cutting pay and bonuses, and would do its utmost to avoid a repeat of the exercise in 1994 when 1,500 jobs were axed.
Many observers, including some inside the firm, say that if Goldman does not come clean and take the hit now, it will be seen as a victory for the traditionalists, who want the firm to keep the bad news to itself.
They believe that having decided not to go ahead with their IPO, they should not be giving rivals ammunition at a time when the huge losses being racked up elsewhere on Wall Street could provide a golden opportunity to pick up market share.
They are up against senior management, including Jon Corzine, who are aware of the dangers of repeating the experience of 1994. At that time Goldman was accused by rivals of window-dressing when it declared a profit for the year even though other investment banks were convinced it had made a loss.
Sources say the issue is not so much trading losses as the accounting treatment of out-of-the money market positions and exposures to counter- parties.
In contrast to quoted competitors which have provided a detailed breakdown of emerging market and hedge fund exposures, Goldman has steadfastly refused to come clean, insisting its exposures are minimal.
Such reticence has merely encouraged the rumour mill to turn even more furiously. Goldman was a heavy player in both the Russian bond market and in lending to hedge fund clients.
Goldman officially still maintains that the firm could relaunch its IPO plans within months. However, there is a growing consensus in the marketplace that the firm has missed the opportunity to float and may have have to wait until the next bull market gets into full swing.
Said one investment banker: "To go to the market you want three years of rising profits. You have to wait until this stuff is washed out of the system."Reuse content