Record profit for Goldman as it comes out fighting on fraud charges

Earnings hit $3.46bn during first quarter after bank puts $5.49bn aside for bonus payments

Goldman Sachs is trying to limit the fallout from fraud charges laid against it, insisting that clients are standing by the firm and that the charges are a "narrow" matter of "he said, she said" which are "not broadly applicable" to the rest of its business.

With regulators in the UK now also taking an interest in the controversial mortgage deal at the heart of the case, the bank yesterday made public more details which it hopes will persuade clients that it did not dupe some investors in order to win large fees from a favoured hedge fund client.

The Securities and Exchange Commission's civil charges came after the end of a financial quarter in which Goldman was once again the king of Wall Street, but threaten to do major damage to its reputation.

The bank earned a record $3.46bn (£2.25bn) in the first three months of the year, and was bringing in revenues at the rate of $1m every 10 minutes. It has begun to accumulate reserves to pay its bumper year-end bonuses, and set aside $5.49bn for pay and benefits, representing $166,000 per employee by the end of March.

Goldman's executives have examined the outpouring of public and political support for the SEC's legal move last Friday, and opted for a fighting response. Senior executives have argued privately that the SEC's charges were timed to influence the debate in Congress over financial reform, in which the White House is pushing to crimp Wall Street profitability and to make the big banks pay for any future financial crises. It emerged yesterday that Goldman has hired Gregory Craig, the White House's former counsel, to lobby for it on Capitol Hill and with regulators.

The bank also put its co-general counsel, Greg Palm, on a conference call to deny it acted fraudulently in the months before the credit crisis broke in 2007. Mr Palm said the bank had not been contacted by the US Department of Justice, meaning there was no indication that more serious criminal charges could follow the SEC's civil action. And he outlined more of the defence that Goldman is likely to pursue, saying that it was not just the hedge fund, Paulson & Co, which had a hand in suggesting the structure of the controversial deal, but also the investors who ultimately lost money.

Investors including ABN Amro, which is now owned by Royal Bank of Scotland, lost $1bn when a mortgage investment vehicle called Abacus collapsed in value within months of its creation in 2007. Paulson & Co paid Goldman $15m to set up Abacus and played a key role in putting together the portfolio of mortgage-related securities that went into the vehicle, before betting against it. The SEC says Goldman failed to mention this when it was marketing Abacus. Paulson went on to make $1bn from its negative bet.

Paulson, whose suggestions included switching out mortgages from lenders known to have better underwriting standards, was over-ruled "more than half the time", Mr Palm said. IKB, a German bank that bought into Abacus, was given a chance to object to any of the securities and tried to remove "a couple... The fact that they made fewer suggestions than Paulson only tells you they were satisfied".

Mr Palm also said Goldman itself lost over $100m on the deal, suggesting it had no interest in seeing Abacus fail. However, he revealed that the bank had originally tried to find more investors and tried again to sell its holding later. This, he said, was "irrelevant" because Goldman would not have done the deal if it was not comfortable holding the stake.

He did not answer a question on why investors were not told Abacus was set up at the instigation of a hedge fund that wanted to bet against it.

Abacus was created in New York by Fabrice Tourre, a 31-year-old employee now based in London. Weeks before selling Abacus to investors, he wrote an email declaring his belief that the mortgage market was on the brink of disaster: "The whole building is about to collapse ... Only potential survivor, the fabulous Fab[rice]... standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!"

Mr Tourre is personally accused of fraud, and of misleading Abacus investors by telling them that Paulson was going to be an investor, too – something Goldman denies he said.

world cup 2014A history of the third-place play-offs
Tommy Ramone performing at The Old Waldorf Nightclub in 1978 in San Francisco, California.
peopleDrummer Tommy was last surviving member of seminal band
Life and Style
Swimsuit, £245, by Agent Provocateur

Diving in at the deep end is no excuse for shirking the style stakes

The Mexico chief finally lets rip as his emotions get the better of him
world cup 2014
Spectators photograph the Tour de France riders as they make their way through the Yorkshire countryside
voicesHoward Jacobson: Line the streets for a cycling race? You might just as well watch a swarm of wasps
Life and Style
lifeHere's one answer to an inquisitive Reddit user's question
Life and Style
Several male celebrities have confessed to being on a diet, including, from left to right, Hugh Grant, Benedict Cumberbatch and Ryan Reynolds
...and the weight loss industry is rubbing its hands in glee
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Arts and Entertainment
'Eminem's recovery from substance abuse has made him a more potent performer, with physical charisma and energy he never had before'
arts + entsReview: Wembley Stadium ***
Mario Balotelli, Divock Origi, Loic Remy, Wilfried Bony and Karim Benzema
transfersBony, Benzema and the other transfer targets
ebookA unique anthology of reporting and analysis of a crucial period of history
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice