Shares in Goldman Sachs (NYSE GS): are only down about 12% over the last six months. That is about the same as the S&P. But, shares in peers Morgan Stanley (NYSE: MS) and Merrill Lynch (NYSE: MER) are off closer to 40%.

That makes Goldman’s earnings this week a critical bell-weather, perhaps more for other brokers than for itself. The firm still has the strongest balance sheet on Wall St. and is likely to make it through almost any downturn in the economy.

Goldman may do much worse than Wall St. expects. The Telegraph reports that the firm’s write-offs could hit $3 billion. That would halve earnings from the same quarter a year ago. The company is expected to writes down a large portion of its investment in the Industrial & Commercial Bank of China. "Goldman will also take a hit of about $1.6bn in its leveraged loans business, which has seen a marked decline in recent months amid a dearth in demand for trading bank debt. A further $1.1bn will be written down in connection with assets owned by Goldman’s principal investment area."

If the news out of GS is that bad, where does that leave its competitors?

Goldman Sachs may be able to handle these kinds of tough financial problems without raising more capital. The same is not likely to be true for the rest of the companies in the industry. And, new capital is hard to come by, as Bear Stearns (NYSE: BSC) found out last week. Private equity and sovereign funds may not be so ready to put money into a sector of the economy where they cannot see a bottom.

If the numbers at Goldman are bad, the real fall-out will be among the less hardy companies on Wall St.

Douglas A. McIntyre

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