Goldman Sachs and Citigroup: Tom Brown's Take on Credit Cycles and Market Trends

Bloomberg TV's Betty Liu sat down with Tom Brown, CEO of Second Curve Capital, to discuss Citigroup's strong earnings results and the ongoing Goldman Sachs scandal. Brown highlighted the importance of credit trends in the financial industry, attributing Citigroup's improvement to the natural end of credit cycles. He also expressed his views on the Goldman Sachs situation, stating that the alleged failure to disclose the true nature of the CDOs might be an isolated incident.

Key Takeaways:

Tom Brown attributes Citigroup's strong earnings to the natural end of credit cycles, where credit costs begin to trend down after a period of high bad loans.
Brown believes that credit cycles are like economic cycles, which naturally come to an end, and that the improvement in credit costs is a positive sign for the industry.
In the context of the Goldman Sachs scandal, Brown suggests that the lack of disclosure about the true nature of the CDOs might be an isolated incident, and that it does not appear to be part of a larger problem.
Brown expects investors to focus on the overall strong outlook for capital markets firms, particularly underwriting and M&A activity, which will drive the stock price of firms like Goldman Sachs.
Brown believes that the testimony of Goldman Sachs CEO Lloyd Blankfein will likely clarify the situation, but only if it confirms the facts that are already known and does not introduce new concerns.
Second Curve Capital does not currently own Goldman Sachs stock, but Brown suggests that the fund may consider buying it if the stock price drops due to the scandal.

Statistics:

Citigroup's credit costs have begun to trend down, a positive sign for the industry.
Goldman Sachs stock price has dropped 15-20% in response to the scandal, which Brown believes presents a buying opportunity.
The industry is expected to see a great year for capital markets firms, with a significant pickup in underwriting activity and M&A activity.

Sources:

Bloomberg TV transcript of April 19, 2010, featuring Tom Brown, CEO of Second Curve Capital.