Goldman Sachs profit bonanza could stoke anger

By Steve Eder - Analysis

NEW YORK (Reuters) - Under normal circumstances, Goldman Sachs Group Inc (GS.N) might be afforded a moment of gloating as it struts toward what could be a banner earnings announcement just nine months after being roiled by Wall Street's worse crisis since the Great Depression.

But these aren't ordinary times for the biggest U.S. investment bank, which lately has faced a torrent of unwanted publicity stemming from employee theft allegations and an unflattering spread in Rolling Stone magazine.

Now Goldman, expected to announced second-quarter earnings on Tuesday, finds itself in a no-win situation.

If earnings are too good critics may lambaste it for ramping up risk too much and embracing a hedge fund-like model that could make it vulnerable to big market swings.

If they fall short, investors may accuse the firm of failing to live up to its reputation for being more aggressive and intelligent than its rivals.

"They are between a rock and a hard place," said Walter Todd, a portfolio manager with Greenwood Capital Associates, which owns shares of rival Morgan Stanley (MS.N).

And, regardless of the results, critics may fall back on the old "Government Sachs" refrain, a nod to the number of former Goldman defectors now working in government, and claiming special treatment.

From a public relations standpoint, Todd said that leaves Goldman asking questions familiar to the oil industry as it contended with windfall profit taxes amid spiking gas prices.

"How well do they really want to do?" Todd asked.

Analysts polled by Thomson Reuters are expecting Goldman to report net income for common shareholders of $3.54 a share.

That is down from a pro-forma $4.58 a year earlier, but would best a surprisingly strong first quarter in which Goldman reported net income of $3.39 per share.

Strong trading income and improving equity underwriting markets are expected to bolster the results, offsetting a one-time charge of $425 million related to payback of loans Goldman took from the U.S. Treasury's Troubled Asset Relief Program, or TARP.

In a noisy second quarter, Goldman repaid $10 billion in TARP loans, while raising $8.9 billion in equity, debt and asset sales to win its way out of the government program.

Getting the approval to exit TARP was considered a key step from getting out from under the thumb of the U.S. government, which has taken the industry to task for lavish compensation.

If Goldman reports strong earnings, it will confront another public relations challenge in how it translates profits to compensation for employees. Last month, the Observer newspaper reported that Goldman employees in London were briefed on the company's performance and told to expect record bonuses if the year finished strongly. Goldman has denied such a briefing ever took place.