“Just wait until the market turns down,” said the sceptics as Goldman Sachs’ profits mounted in the benign market conditions of the last couple of years.

Well, one part of the market has turned down with a vengeance and Goldman has managed to outperform on the way down, just as it did on the way up. This week’s results from four of the top Wall Street banks have shown a much higher-than-expected variation in the damage inflicted by the turmoil in the credit markets.

Goldman wildly outstripped expectations with its 79 per cent increase in earnings for the three months to August, Lehman Brothers’ 3 per cent fall was somewhat better than forecasts, Morgan Stanley’s 7 per cent drop somewhat worse and Bear Stearns’ 61 per cent fall considerably worse. In part this reflects business mix. Bear and Lehman have a much bigger exposure to the most difficult market – US mortgages and mortgage-backed securities.

Geographic diversity has helped Goldman, Morgan Stanley and Lehman, while Bear has suffered from its greater dependence on the US market. But it is also clear that some, if not much, of the variation is down to risk management and making the right market calls.

Take Goldman and Bear’s management of their mortgage operations. Goldman suffered significant losses on subprime mortgages and mortgage-backed securities. But under Lloyd Blankfein, chief executive, Goldman more than offset these losses with gains on big short positions. Bear also hedged its risk on mortgages and asset-backed securities, but this only reduced losses to about $450m.

Sam Molinaro, Bear’s chief financial officer, said there was also “a tremendous amount of stress” on hedging strategies in August, as the performance of cash and derivatives markets diverged markedly.

“This was not only in the mortgage business and leveraged finance but really across many business areas where we saw significant disconnects in hedging strategy,” he said.

But this problem was faced by all the banks and Lehman managed to limit its markdowns on mortgages to less than $350m, net of hedges.

In leveraged loans, Lehman also appears to have been quite successful in hedging its exposure, though it is hard to make accurate comparisons because of its lower level of disclosure.

Goldman recorded a loss of $1.71bn net of fees on its loan commitments to private equity companies, which was reduced to $1.48bn after hedges. Morgan Stanley’s writedown was $726m on a smaller portfolio, but it is impossible to calculate the average writedown. Bear’s markdown on leveraged loan commitments was $250m net of fees, not including hedges, and it now has a pipeline of $7bn.

Bear was hit with $200m in losses and expenses related to the collapse of two mortgage hedge funds it managed. Its large prime brokerage business serving hedge funds also suffered from concerns about Bear’s financial stability. Customer balances fell about 13 per cent, with two-thirds of the drop due to clients shifting funds to other brokers.

Bear’s holdings of mortgage assets was $50bn at the end of the quarter, having peaked at about $55bn in July because it was committed to taking on loans that it could no longer sell into the market. Mr Molinaro said the book was now down to $45bn.

Its return on equity fell to 5.3 per cent in the third quarter and there was a slight decrease in book value to $91.82 per share. The board has increased authorisation for share repurchases to $2.5bn, allowing for up to $1bn in corporate repurchases as opposed to those for employee stock award plans.

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