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June 10, 2010 Thursday 10:31 AM EST
NEWS & COMMENTARY; Commentary; MarketWatch First Take
Goldman’s mounting legal quagmire
NEW YORK (MarketWatch) — Goldman Sachs Group Inc.’s legal challenges are mounting, threatening the firm’s outlook.
The Securities and Exchange Commission is reportedly looking into another securities deal tied to mortgages that Goldman (GS) sold, according to a report in the Financial Times.
Separately, the firm’s notorious Timberwolf deal, made famous in congressional hearings, is the target of a lawsuit. Read FT report on new SEC investigation.
The investigations and legal challenges aimed at Goldman continue to swell. The SEC already has charged the firm over its marketing of Abacus. Separate investigations reportedly are underway led by FINRA and the U.K.’s Financial Services Authority.
So far, Goldman has yet to see a fine; it hasn’t been held responsible in any of these cases. The damage only has been to reputation, and though the firm’s image has been tarnished, evidence that clients are fleeing the firm remains scant, save for American International Group Inc. (AIG) which dumped Goldman as its lead banker as did New York’s transit authority.
However, no firm is immune to legal pressure. The threat of fines or penalties that could restrict Goldman’s practices looms over the stock. Goldman shares have stumbled, falling 21.1% year-to-date to $136.38 in morning trading Thursday, exceeding the losses suffered by rivals including Morgan Stanley (MS) , down 15% and J.P Morgan Chase & Co. (JPM) , down 11%.
Should Goldman lose either a lawsuit or criminal case, or even if it settles and has to pay a substantial fine, the looming cases against the firm will weigh on it even more.
Finally, there is the issue of Goldman’s business. Investment banking has slowed since the firm reported $3.3 billion in net income for the first quarter. That means less money to pay fines and fight legal battles. The stock becomes less attractive, and the potential that the firm’s troubles could send it into a spiral will weigh on the brokerage.
For now, it may not be enough to get Goldman supporters to bail, but with each new inquiry and accusation, the firm definitely is drawing their attention.
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June 11, 2010