The Wall Street Journal reports that Goldman Sach's bet earlier this year that US subprime was heading down the toilet has yielded what the newspaper describes as 'one of the largest windfalls the securities industry has seen in years' - a cool $4bn profit.
According to the newspaper, which quotes unnamed 'people familiar with the firm's finances', the subprime bet was made by traders in the 16-person US structured-products trading group. And these guys were brave - as they bet against almost everyone else. ( And they have now no doubt been awarded huge bonuses ). The $4bn windfall more than compensates for the $1.5bn - $2bn mortgage-related losses Goldman is likely to have sustained in its fiscal 2007. The firm posts its full year profits Tuesday, which are thought likely to come in at a new record high.
Even the gains made at Goldman pale, however, when compared to the profits made by hedge fund group Paulson & Co, which is thought to have made over $12bn across the group by betting against subprime this year. Paulson is said to have now cashed out most of the positions to capture the gains, and the firm is likely to bag up to $4bn in fees this year from happy investors.
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