A ‘black eye’ for Goldman

It may have to pay as much as US$2bil; CEO and CFO could face the axe

BANGALORE: Goldman Sachs Inc may have to cough up a big fine to settle the civil lawsuit brought by US regulators but the biggest damage would be to the reputation of the influential bank, analysts said.

Rochdale Research’s Richard Bove said Goldman may have to pay as much as US$2bil, including fees earned and penalties, and chief executive officer Lloyd Blankfein and chief financial officer David Viniar could face the axe for the “devastating decline” in the firm’s persona.

Since it is a civil complaint, it may not be “life threatening” for the company and the worst could be a large monetary fine, Citigroup analyst Keith Horowitz said. “Based on our understanding, this implies the government did not find sufficient evidence to justify a criminal action, although that cannot be ruled out in the future.”

Bernstein Research estimated a worst-case liability of US$706.5mil for the company, or US$1.20 per share, based on a 2010 average diluted share count.

Oppenheimer Equity Research said the shares were likely to suffer in the near term although Goldman will continue to post strong earnings.

“At the moment, it looks as if the SEC is pursuing an agenda aimed specifically at Goldman. That likely will keep a cloud over the stock for now,” Oppenheimer analyst Chris Kotowski said.

People walk past revolving doors of the new Goldman Sachs Group Inc global HQ, also known by its address as 200 West Street, in New York’s lower Manhattan. — Reuters

 

The lawsuit and other potential litigation may create an overhang on the shares, while upcoming regulations would cloud the earnings outlook, S&P Equity analyst Matthew Albrecht said.

The lawsuit may help the administration in swaying some on-the-fence Republicans to support a tougher financials bill that the White House had been lobbying for, Barclays said.

“These charges, and the timing of them, increase the likelihood of passage of a more onerous derivatives bill for dealers, and that could ultimately be far more costly to Goldman and its competitors,” Barclays analyst Roger Freeman said.

Goldman is seen reporting another quarter of out-sized profits, when it posts financial results tomorrow, after an unusually strong year from its fixed-income trading operation in 2009.

“While tough to quantify the impact from this complaint, we don’t see massive changes to the business model or earnings power over the long term,” UBS analyst Glenn Schorr said. — Reuters

Oppenheimer’s Kotowski said the stock would not perform well until the SEC charges were closer to resolution, but said he believed that the bank would remain highly profitable.
Goldman shares closed down about 13% at US$160.70 on Friday on the New York Stock Exchange. — Reuters

Latest business news from AP-Wire