Goldman Sachs Expects More Inquiries, Lawsuits

Monday, 10 May 2010 03:45 PM

 

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Goldman Sachs on Monday showed how its trading operations are stronger than ever, but warned that more litigation and investigations loom.

Goldman, in a quarterly regulatory filing, said it made it through the first quarter without a single day of trading losses, the first time it had accomplished such a feat. The firm reported trading revenue of more than $100 million on 35 days in the quarter.

In the same filing, Goldman said it still faces a number of probes and reviews, which could be damaging.

It said it anticipates additional shareholder actions and other investigations related to its offerings of collateralized debt obligations, which are at the heart of charges against the firm filed by the Securities and Exchange Commission.

Goldman shares have tumbled more than 20 percent since the SEC accused the bank on April 16 of failing to tell investors who bought risky debt tied to subprime mortgages that hedge fund manager John Paulson helped select the underlying portfolio for the security and was shorting the deal.

Goldman shares were up 2.1 percent to $145.99 in morning trading but lagged behind others in the Amex Securities Broker/Dealer Index. Equities were rallying after tumbling last week.

Goldman, in its filing, said the SEC case "could result in collateral consequences to us that may materially adversely affect the manner in which we conduct our businesses." It said certain outcomes could impact the firm's ability to act as broker-dealer or provide certain advisory and other services to U.S.-registered mutual funds.

The Wall Street Journal reported last week that Goldman had begun settlement talks with the SEC.

Some analysts and investors have speculated that scrutiny surrounding Goldman would lead to the resignation of Chief Executive Lloyd Blankfein. But at the bank's annual shareholder meeting on Friday, Blankfein said he had no plans to resign.

For the past year, Goldman has faced a backlash over its quick rebound from the financial crisis, while benefiting from various government bailout programs, and its bonus pool, which topped $16 billion last year.

Goldman, which reported record profit in 2009, has been trying to live down a Rolling Stone article last year that labeled the firm a "giant vampire squid wrapped around the face of humanity."

Its blockbuster trading performance in the first quarter, coupled with the SEC charges, could heighten the public furor surrounding the firm, which has been cast as profiting from the subprime mortgage meltdown.

Goldman, criticized for not disclosing it had received notice last year of the likelihood of SEC charges, discussed several investigations on Monday, including probes by the Financial Industry Regulatory Authority and the UK's Financial Services Authority related to CDO offerings and related matters.

The bank said it is cooperating with a number of investigations and reviews into its sales and trading operations related to corporate and government securities and other financial products.

The firm also said it is facing investigations and reviews relating to the 2008 financial crisis, including the establishment and unwinding of credit default swaps with American International Group . Goldman has been criticized for benefiting from the government rescue of AIG.

Inquiries into the financial crisis are also looking at Goldman's transactions with Bear Stearns and Lehman Brothers.

Goldman also disclosed that it is subject to inquiries related to its transactions with the government of Greece, including financing and swap transactions.

© 2014 Thomson/Reuters. All rights reserved.

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