NEW YORK - Charges of fraud may be a bad thing for a firm's reputation, but there are already arguments being made that in the case of
Goldman Sachs(GS) fraud is just an opportunity to buy into its stock at a good price.
Goldman Sachs' shares fell 13% on Friday after the Securities and Exchange Commission filed a civil complaint against Goldman alleging fraud in its marketing of a subprime mortgage product.
The one-day loss in Goldman's market cap was approximately $13 billion.
Some market commentators were immediately out highlighting a disconnect between the market cap punishment exacted on Goldman Sachs shares on Friday and the total value of $1 billion in the civil complaint filed by the SEC.
Brad Hintz, a Sanford Bernstein analyst told CNBC on Friday evening that even if Goldman pays $1 billion in the complaint, as well as a securities fine of $50 million, markets in which Goldman is a leader, including M&A and prime brokerage, are not going away.
The bigger issue for the Bernstein analyst was the overall impact of the Goldman fraud suit on the political battle over derivatives regulation.
Indeed, Senate Agriculture Committee Blanche Lincoln unveiled his draft bill to regulate the $450 trillion over-the-counter derivatives market on the same day as the SEC suit against Goldman. Some read Lincoln's use of the term "regulate" to mean no more than taking away the $450 trillion market from the big banks.
Senator Lincoln gave a quote to the press linking the issues. "This is another example of how risky Wall Street behavior puts our nation's financial system in peril and further illustrates the need for the strong reform that my legislation provides. My legislation reigns in this risky behavior by ending the days of backroom deals, providing 100% transparency to the derivatives market."
President Obama got in on the action on Friday, too, saying, "I will veto legislation that does not bring the derivatives market under control." The SEC suit against Goldman, regardless of the merits of the case, can not be separated from the current political battle over financial reform.
Bernstein's Hintz said it looks like the Street will lose the derivatives fight. If so, the No. 1 question for Goldman Sachs' financial outlook is: how would the loss of derivatives business impact the bottom line?
Other analysts were out with a Goldman Sachs downgrade within hours of the SEC complaint being filed. There are also fears that Goldman is just the first among a group of banks, including Deutsche Bank(DB), likely to face similar fraud charges from the SEC. Deutsche Bank shares suffered the second biggest loss in the banking sector on Friday, down more than 9%.
Oppenheimer & Co. downgraded Goldman from outperform to market perform, and suspended its $228 price target on Goldman shares, which fell by $23.57 on Friday to $160.70. The Oppenheimer analyst said that Goldman will continue to post strong earnings in the short-term, but described the SEC charges as being driven by public sentiment and, as such, atypical in terms of the pressure on regulators to make an example of Goldman.
Standard & Poor's also downgraded Goldman from a strong buy to a hold rating, citing the overhang on the stock from additional litigation. The S&P analyst said there was also an unquantifiable risk to Goldman's earnings outlook that could result from the boost the SEC suit might provide to the current financial reform effort in Washington D.C.
Citigroup analyst Keith Horowitz said the worst-case scenario was a large monetary fine. Since Goldman did not face criminal charges, the SEC case should not be "life threatening" for Goldman. "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," the Citi analyst wrote.
Potential litigation. Share price deterioration linked to risk of reputation. Earnings deterioration based on potential changes in the financial reform package that President Obama is hoping to push through Congress.
It might take a strong stomach, not to mention ethical blinders, to read the SEC allegations of fraud against Goldman Sachs as a signal to buy Goldman Shares. Nevertheless, there's always a long for every short, and that's not just the case for those investors going long subprime mortgages while Goldman allegedly set them up for a fall.
Indeed, Friday's big market news begs the question, is it time to buy, hold or sell shares of Goldman Sachs?
Fonte: http://www.thestreet.com/story/10728591/2/goldman-sachs-stock-buy-sell-or-hold.html
