分析师就高盛被诉一事报告
新浪财经讯 上周五美国证交会指控高盛涉嫌欺诈，众多分析师就此事发表了看法，以下为部分报告摘要及全文：
花旗研究报告
巴克莱资本股票研究
瑞银投资研究
ISI Group银行研究
美国银行美林MLPF&S
William Blair & Company股票研究
Ryan O'Connell
Director
Corporate Bond Research
Citi Investment Research
New York
Ryan O'Connell
主管
企业债券研究
花旗投资研究
纽约
16 April, 2010
2010年4月16日
Civil vs Criminal Lawsuit — This action is a civil complaint, not a criminal complaint, implying that downside is a large monetary fine. 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 Dept of Justice, not the SEC, has the authority to bring criminal actions. Note that Paulson was not named as a party in the lawsuit.
民事与刑事诉讼——本次行动是民事诉讼，不是刑事诉讼，意即顶多是巨额罚金。我们认为，这暗示美国政府没有找到充分的证据来支持刑事诉讼，不过不能排除将来提起刑事诉讼的可能性。司法部才有权提起刑事诉讼，而证券交易委员会(SEC)没有这种权力。
Marketing/Disclosure Issue With Limited Read Through — In terms of read thru to other financials that were involved in selling CDOs, the key question is whether or not their disclosure/marketing of deals was adequate – and not the fact that they sold securities which subsequently performed poorly.
销售/披露不充分的问题——就向参与销售担保债务凭证(CDO)事件的其它金融机构详细介绍相关情况而言，关键问题在于他们的披露/销售介绍是否充分，而不是他们销售的证券后来表现糟糕。
Precedents — This is the first time the SEC has brought a complaint alleging fraud on the part of a broker dealer in marketing investments on subprime mortgages. Based on our understanding, the SEC has frequently brought actions against broker dealers for other alleged disclosure lapses. Recently, the SEC brought a complaint alleging that BAC did not provide sufficient disclosure about Merrill bonuses when it was seeking shareholder approval for the Merrill acquisition.
先例——这是SEC首次对从事销售次优抵押贷款投资的经纪商提起欺诈诉讼。据我们了解，SEC经常因其它的信息披露过失而对经纪商采取行动。最近SEC指控，美银在争取股东批准其收购美林时，没有充分披露美林的奖金信息。
Issue for GS — The two key issues for Goldman in our view is reputational risk, and possible follow on lawsuits related to this action. The SEC’s complaint refers to only one CDO structure, and the issue is whether this was an isolated incident or not. Reputation risk is biggest issue in our view, and we do not view this as a “life threatening issue”， but clearly seems like a “black eye” for Goldman.
高盛面临的问题——我们认为，高盛面临的两个关键问题是声誉风险，以及与本次行动相关的后续诉讼。SEC的诉讼仅涉及一个CDO产品，问题是这是否是孤立的个案。我们认为，声誉风险是最大的问题，虽然我们认为这不是“性命攸关的问题”，但对于高盛来说显然是“丢人现眼”。
Raising Risk Rating To High, Maintain Buy — On a fundamental basis, we continue to see very strong upside in the stock, but these issues will take a while to resolve and will add more headline risk to the story – which thus makes it hard to call this selloff a “buying opportunity”， but that being said we would be buyers rather than sellers at these levels. GS bonds have sold off 30 bp on this news to approximately 170 bp over treasuries, reflecting investor concerns.
风险评级调升至“高”，维持“买入”评级——从基本面来看，我们依然认为该股上升潜力很大，但这些问题的解决将需要时间，将给其带来更多的标题风险(headline risk)，因而难以把这次下跌看成“买入机会”。但尽管如此，我们在目前水准倾向于买进，而不是卖出。高盛债券受相关消息影响已下跌30个基点，较可比美国公债的利差为170个基点左右，反映了投资者的担忧。
Roger A. Freeman, CFA and Eric Bertrand
Equity Research
Barclays Capital
New York
注册金融分析师Roger A. Freeman，Eric Bertrand
股票研究
巴克莱资本
纽约
16 April, 2010
2010年4月16日
Goldman Sachs Group Inc. (GS - US$ 184.27) 2-Equal Weight
高盛集团(高盛－184.27美元) 表现与大盘一致
Administration Steps Up Support for Bill Investment
政府加大对参议院议案的支持
We believe that Senator Dodd has targeted a vote on the Senate bill (with the expected Lincoln amendment) by April 26th, and given the short span of time between now and the end of the month, we are not surprised to see the stepped up support for the bill。
我们相信，参议员多德计划在4月26日之前对参议院提案(与预期中的林肯修正案一起)进行投票，鉴于本月所剩时间无多，对于该提案的支持增强，我们并不感到意外。
As for GS itself, the profits were small (apparently $15mm)， so assuming a penalty a few times the size of those profits might yield a penalty in the $100mm range (very rough, initial estimate). Reputationally, unless there are in fact more of these transactions with more clients, we would not expect a material fall-out. With the shares down some 14% today (SPX down 1.8%) to about 1.3x P/B, we find them attractive here, especially ahead of a likely strong quarter with an upside earnings surprise (based on earnings produced by peers so far) and an opportunity to tell the company's side of the story。
就高盛本身来说，获利很少(约为1500万美元)，所以假设罚金是该数目的几倍，则可能是1亿美元左右(这是非常粗略的初步估计)。从声誉方面来看，除非与较多客户进行了大量此类交易，否则不会产生很严重的后果。该股今日重挫了14%左右(标准普尔指数下跌1.8%)，市盈率约为1.3倍，我们认为目前价位已有吸引力，尤其是该公司稍后可能公布强劲的季度业绩，而且可能提出自己的申辩。其获利情况可能令人惊喜(根据其同业迄今已公布的业绩判断)，
Glenn Schorr, CFA
UBS Investment Research
New York
金融分析师Glenn Schorr
瑞银集团投资研究
纽约
16 April, 2010
2010年4月16日
I'm not a lawyer and don't know all the different rules between trading versus structuring & underwriting, but as we sat here all day and thought about this, the thing that puzzled us about the core of this issue is how you define a market, meaning whether or not a broker dealer has the duty to disclose that the identity of someone that wants to sell some asset to someone that wants to buy that asset - last we checked, most clients would have a major problem with that。
我不是律师，不懂交易、投资产品设计和承销之间的不同规则，但我们整天坐在这里并思考这件事，影响我们对该问题本质的认识的事情是，如何定义一个市场，即经纪商是否有义务披露向有意购买的买家出售某种资产的卖家的身份。根据我们上次调查的结果，多数客户在这方面都遇到了很大的问题。
Key Is How You Define A Market
关键是你如何定义一个市场
What's on our mind? Three general points about the market: 1) brokers aren't normally in the business of disclosing who the parties are on each side of the transaction, 2) brokers are in the business of delivering products that provide tailored exposures for clients, and 3) the brokers are not expected to keep the risk from point 2 on their balance sheet (meaning they try to find the other side of the trade)。
我们关注的是什么？市场有三个基本特点：1)经纪商通常不披露交易双方是谁，2) 经纪商提供产品，而这些产品对客户来说具有量身定制的风险暴露，3)经纪商一般不会把来自第2点的风险留在自己的资产负债表上面(意即他们会设法寻找交易的另一方)。
Valuation: Gut Check, But Still See Long Term Value
估值：全面检查，但仍认为其有长期价值
GS could face continued pressure in the near term as the “uninvestable” label is back. 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. Our price target is based on 1.6x our forward four-quarter book value estimate。
由于又戴上了“不可投资”标签，高盛近期内可能持续面临压力。虽然难以量化此次诉讼的影响，但我们预计，长期来看，业务模式或者盈利能力不会有巨大变化。我们给出的目标股价，基于我们对未来四个季度预估账面价值的1.6倍。
Ed Najarian
Head of Bank Research
Senior Managing Director
ISI Group
New York
Ed Najarian
银行研究主管
资深常务董事
ISI Group
纽约
16 April, 2010
2010年4月16日
Company note: Goldman Sachs (Buy, $225 PT)
公司报告：高盛(买入，目标股价为225美元)
SEC brings securities fraud action against GS
SEC对高盛提起证券欺诈起诉
* A $1bn reimbursement would be very manageable: If the charges resulted in GS reimbursing the CDO investors with $1bn, it would impact GS 2010 EPS by only up to about $1.70 or slightly more than 1% of Goldman's current market cap., excluding any additional punitive damage awards or settlements.
如果退款10亿美元，还是很好应付的：如果指控导致高盛向CDO投资者退还10亿美元，不计入额外的惩罚性损失赔偿或者和解金，只会对高盛2010年每股盈余(EPS)至多产生大约1.70美元的影响，略高于高盛当前市值的1%。
l However, down 12% seems like an overreaction: GS shares are down 12% today, which seems like an overreaction. We also note that other money center banks & brokers are down significantly today. Thus, there are perhaps good long-term buying opportunities for investors that are willing to shoulder intermediate-term risk。
l 但是，下挫12%似乎有点反应过度：高盛股价今日下跌12%，似乎反应过度。我们还注意到，其它货币中心的银行与经纪商股票也大幅下跌。因此，愿意承担中期风险的投资者可能面临很好的长线买入机会。
Guy Moszkowski, CFA/Sandra Goldschneider
Research Analyst/Research Analyst
MLPF&S
Bank of America Merrill Lynch
New York
金融分析师Guy Moszkowski /Sandra Goldschneider
研究分析师/研究分析师
MLPF&S
美国银行美林
纽约
16 April, 2010
2010年4月16日
Goldman Sachs Group: Company Update BUY
高盛集团：公司评级为“买入”
SEC case seems limited, but reputational fallout worrisome
SEC案件似乎不大，但声誉影响令人担忧
The accused is relatively low-level, and alleged loss is a manageable sum…
This is clearly a serious charge, but so far it is a one-off, it is civil rather than criminal, and the individual charged is at a relatively low level in the firm. All these factors mitigate the seriousness to an extent, in our view. The total alleged losses of $1bn would, if they were the basis of a settlement, be about $1/ share。
被指控者在公司的职位相对较低，而且所主张的损失数目也是能够承受的……
这显然是严重指控，但迄今只是一次性指控，属于民事诉讼，而不是刑事诉讼，而且被指控者在公司中的职位相对较低。我们认为，所有这些因素在一定程度上减弱了案件的严重性。所声称的10亿美元总体损失，如果是和解的基础，大约相当于每股1美元。
Selloff seems overdone
跌势似乎过度
Balancing all these factors, it’s our view that the 13% decline in the share price as we write this is an overreaction, ahead of what we believe will be strong Q1 results next week。
权衡所有这些因素，我们认为，我们撰写本报告时该股已下挫13%，属于反应过度，而且我们认为下周高盛将公布良好的第一季财报。
Case hinges on alleged misrepresentation of collateral selection
案件取决于所声称的对抵押品选择情况的虚假陈述
The SEC has brought a civil fraud charge against GS and one of its Vice Presidents in the matter of a single 2007 CDO tied to subprime mortgages. The essence of the case is that GS and VP Fabrice Tourre are said to have structured the deal at the behest of Paulson & Co., a hedge fund manager that sought to benefit from short positions in what it viewed as doomed subprime mortgages. The crux of the SEC’s case is that GS is alleged to have represented to the CDO’s buyers that an independent agent had selected the subprime bond collateral but that, it is alleged, Paulson in fact selected the collateral。
SEC对高盛及其一位副总裁提起民事欺诈诉讼，涉及2007年单独一起与次优抵押贷款相关的CDO。案件核心是高盛和副总裁Fabrice Tourre据说受对冲基金公司Paulson & Co。要求设计了这项CDO，而该基金公司寻求从它认为注定要出问题的次优抵押贷款的空头头寸获利。SEC案件的关键是，高盛据称告诉CDO买家，一家独立的机构选择了次优债券抵押品，但据称实际上是Paulson & Co。选择的抵押品。
SEC not commenting on next steps/ DOJ involvement
SEC未评论下一步措施/司法部参与
This is, as noted, not a criminal case, though the SEC noted on its conference call that it is not empowered to bring criminal charges, and would not comment on whether it might refer the case to the Dept. of Justice to pursue such charges. Criminal charges against a firm are potentially crippling and are extremely rare。
这不是刑事案件，但SEC在电话会议中指出，它无权提起刑事诉讼，而且不愿意评论是否会把案件移交给司法部，以便提起刑事指控。对一家公司提起刑事指控，可能影响巨大，因此极其罕见。
Accused is a VP, which appears to insulate senior management and the firm
被指控的个人是一名副总裁，似乎未牵扯高层管理者与高盛公司
The fact that the only individual charged here, after what was presumably a very thorough investigation, was a Vice President rather than a Managing Director or higher, is relatively reassuring news for GS, since it seems most likely that the potential for more serious charges rises dramatically the higher up the management chain the charges go. The action is being brought by a new unit of the SEC focused on structured and complex securities and it is not clear whether or not other deals, either by GS or other firms, will be subject to other cases。
经过应该是非常彻底的调查之后，本案仅有一名副总裁受指控，而不是总经理或者职位更高的人，这对于高盛来说是相对令人宽慰的消息。受指控的人层级越高，往往更严重的指控会随之大幅增加。这次起诉是由SEC新成立的一个专责结构性与复合证券的部门提起，目前尚不清楚的是，高盛或其它证券公司的其它交易，是否会在其它案件遭到起诉。
Mark Lane/Rachel Carter
Equity Research
William Blair & Company, L.L.C。
Chicago
Mark Lane/Rachel Carter
股票研究
William Blair & Company, L.L.C。
芝加哥
16 April, 2010
2010年4月16日
Goldman Sachs Group, Inc. (The)
Stock Rating: Outperform
高盛集团
股票评级：表现优于大盘
SEC Charges Against Goldman: Not Good News for Sentiment/Regulatory Reform Debates, but Not Likely a Direct, Major Impact on Business
SEC对高盛提起诉讼：对于人气/监管改革争论来说不是好消息，但不太可能会对高盛业务产生直接的重大影响。
• Our expectation is that these charges could potentially result in a hefty fine and some potential liabilities to investors who lost money in the marketed CDO, but will not hurt Goldman’s business in any material fashion. Moreover, we believe that any potential negative financial impact will be more than manageable given Goldman’s strong ongoing earnings power and significant financial flexibility. From its perspective, Goldman has stated that the charges are completely unfounded in law and fact and it will vigorously contest them and defend the firm and its reputation. We also believe these charges appear to be isolated, and a lot of other SEC-led charges have already been brought, and will continue to be brought, against financial firms relating to the financial crisis, including circumstances similar to the charges brought against Goldman. The SEC also continues to be under serious scrutiny for poor regulation during the financial crisis and is under pressure to bring charges against more financial firms; these charges in particular were sensationalized, in our opinion。
我们的预期是，这些指控可能导致巨额罚款，并可能需要对在相关CDO上面损失了金钱的投资者承担一些责任，但不会对高盛的业务产生任何实质损害。另外，我们认为，鉴于高盛强大的盈利能力和巨大的财务弹性，任何潜在的负面财务影响都会处于可控制范围之内。从高盛方面来看，高盛已经声明，相关指控毫无法律和事实根据，它将积极申辩，捍卫公司利益及其声誉。我们也相信，这些指控似乎是孤立的，而且SEC牵头曾提起了其它许多诉讼，而且将继续提起关于金融公司的与这次金融危机相关的诉讼，包括类似于高盛这次的情形。由于在金融危机期间监管不力，SEC也继续受到严格的审视，而且受到压力需要指控更多的金融公司。我们认为，这些指控特别耸人听闻。
全文：
Ryan O'Connell
Director
Corporate Bond Research
Citi Investment Research
New York
SEC Civil Lawsuit — The SEC alleges that Goldman structured a synthetic collateralized debt obligation (CDO) structure that was based on subprime mortgage securities that Goldman marketed as being selected by an independent manager (ACA Management LLC). The complaint alleges that Goldman failed to disclose to investors that a major hedge fund (Paulson & Co. Inc。) played a role in the portfolio selection process and had taken a short position against the bonds referenced in the CDO. Essentially saying, investors in the CDO sold protection on the referenced bonds (took the credit risk) through credit default swaps, while Goldman’s client bought protection (shorted credit risk). Also, the SEC alleges that Goldman misled ACA into believing that Paulson was investing in the CDO equity and therefore shared a long interest with the CDO investors. The SEC alleges that Paulson paid Goldman $15 million to structure the CDO. According to the complaint, investors in the CDO lost about $1 billion while Paulson made a profit of about $1 billion.
Civil vs Criminal Lawsuit — This action is a civil complaint, not a criminal complaint, implying that downside is a large monetary fine. 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 Dept of Justice, not the SEC, has the authority to bring criminal actions. Note that Paulson was not named as a party in the lawsuit.
Marketing/Disclosure Issue With Limited Read Through — In terms of read thru to other financials that were involved in selling CDOs, the key question is whether or not their disclosure/marketing of deals was adequate – and not the fact that they sold securities which subsequently performed poorly.
Precedents — This is the first time the SEC has brought a complaint alleging fraud on the part of a broker dealer in marketing investments on subprime mortgages. Based on our understanding, the SEC has frequently brought actions against broker dealers for other alleged disclosure lapses. Recently, the SEC brought a complaint alleging that BAC did not provide sufficient disclosure about Merrill bonuses when it was seeking shareholder approval for the Merrill acquisition.
Issue for GS — The two key issues for Goldman in our view is reputational risk, and possible follow on lawsuits related to this action. The SEC’s complaint refers to only one CDO structure, and the issue is whether this was an isolated incident or not. Reputation risk is biggest issue in our view, and we do not view this as a “life threatening issue”， but clearly seems like a “black eye” for Goldman.
Raising Risk Rating To High, Maintain Buy — On a fundamental basis, we continue to see very strong upside in the stock, but these issues will take a while to resolve and will add more headline risk to the story – which thus makes it hard to call this selloff a “buying opportunity”， but that being said we would be buyers rather than sellers at these levels. GS bonds have sold off 30 bp on this news to approximately 170 bp over treasuries, reflecting investor concerns.
Roger A. Freeman, CFA and Eric Bertrand
Equity Research
Barclays Capital
New York
Goldman Sachs Group Inc. (GS - US$ 184.27) 2-Equal Weight
Market Commentary/Strategy
Administration Steps Up Support for Bill Investment
Conclusion
With revised derivatives legislation pending from Senator Blanche Lincoln from the Senate Ag subcommittee, which appears to have taken a turn towards a more restrictive set of rules and regulations in recent days based on a letter from Senator Lincoln earlier this week outlining likely components of her bill, the Administration has likely created a more difficult challenge for itself in securing the 60 votes necessary to push the Senate financial reform bill to the floor of the Senate for a majority vote. Today's SEC announcement and conference call (which did not
allow analysts or investors to ask questions) was a well-timed, and perhaps not coincidental, effort to sway some on-the-fence Republicans to support a tougher financials bill that the White House has been lobbying for. Targeting GS, given the flurry of anti-Wall Street press that has centered around that firm offers the publicity that the administration needs at this critical juncture. We believe that Senator Dodd has targeted a vote on the Senate bill (with the expected Lincoln amendment) by April 26th, and given the short span of time between now and the end of the month, we are not surprised to see the stepped up support for the bill。
As for GS itself, the profits were small (apparently $15mm)， so assuming a penalty a few times the size of those profits might yield a penalty in the $100mm range (very rough, initial estimate). Reputationally, unless there are in fact more of these transactions with more clients, we would not expect a material fall-out. With the shares down some 14% today (SPX down 1.8%) to about 1.3x P/B, we find them attractive here, especially ahead of a likely strong quarter with an upside earnings surprise (based on earnings produced by peers so far) and an opportunity to tell the company's side of the story。
That 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 GS, its competitors, and the competitiveness of the US capital markets system broadly。
The situation is of course fluid, and we will follow up with additional thoughts post the company's earnings report on Tuesday。
Glenn Schorr, CFA
UBS Investment Research
New York
I'm not a lawyer and don't know all the different rules between trading versus structuring & underwriting, but as we sat here all day and thought about this, the thing that puzzled us about the core of this issue is how you define a market, meaning whether or not a broker dealer has the duty to disclose that the identity of someone that wants to sell some asset to someone that wants to buy that asset - last we checked, most clients would have a major problem with that。
Goldman Issues Follow Up Comments
The core of their follow up had 4 points: 1) GS lost money on the deal ($90 mm, or 6x their fee as they retained a residual long risk position – doesn’t make sense that they would write CDS if they knew this was a “bad deal”)， 2) extensive disclosure was provided about the underlying securities to sophisticated investors, 3) ACA selected the portfolio (yes, w/ input from investors including Paulson & Co)， and 4) GS never represented to ACA that Paulson was going to be a long investor。。
Key Is How You Define A Market
What's on our mind? Three general points about the market: 1) brokers aren't normally in the business of disclosing who the parties are on each side of the transaction, 2) brokers are in the business of delivering products that provide tailored exposures for clients, and 3) the brokers are not expected to keep the risk from point 2 on their balance sheet (meaning they try to find the other side of the trade)。
Broader Impacts Remain a Wild Card
Secondary & tertiary impacts are tough to quantify, but we see the potential for other litigation (shareholder suits, NY AG…)， possible loss of business at least in the short term (central banks, public pension funds…)， and an increase in momentum for more stringent regulatory reform。
Valuation: Gut Check, But Still See Long Term Value
GS could face continued pressure in the near term as the “uninvestable” label is back. 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. Our price target is based on 1.6x our forward four-quarter book value estimate。
Ed Najarian
Head of Bank Research
Senior Managing Director
ISI Group
New York
ISI: GS: SEC charge cuts market cap by $12bn
Company note: Goldman Sachs (Buy, $225 PT)
SEC brings securities fraud action against GS
* The SEC filed a securities fraud action against GS and a GS employee regarding misstatements in connection with a CDO, summarized as follows: 1) The SEC alleges that GS structured & marketed a CDO (ABACUS 2007-AC1) that hinged on the performance of subprime RMBS and failed to disclose the role that a hedge fund played in the RMBS portfolio selection process and shorting the CDO, 2) the SEC alleges that a GS VP who was responsible for structuring the transaction, preparing the marketing materials & communicating with investors allegedly knew of the hedge fund's role in the RMBS selection process but did not disclose that to investors, & 3) investors in the liabilities of ABACUS are alleged to have lost more than $1bn。
* GS responded to the SEC's charges with the following one-sentence press release: "The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation".
* A $1bn reimbursement would be very manageable: If the charges resulted in GS reimbursing the CDO investors with $1bn, it would impact GS 2010 EPS by only up to about $1.70 or slightly more than 1% of Goldman's current market cap., excluding any additional punitive damage awards or settlements.
* But we have no way to quantify additional risks: However, at this time, we have no way to quantify the earnings or stock price impact from the following additional risks: 1) any additional potential punitive damages related to this charge, 2) systemic risk related to other GS CDO transactions that could be pursued by the SEC, and 3) reputational risk for GS that could impact its revenue。
* However, down 12% seems like an overreaction: GS shares are down 12% today, which seems like an overreaction. We also note that other money center banks & brokers are down significantly today. Thus, there are perhaps good long-term buying opportunities for investors that are willing to shoulder intermediate-term risk。
Guy Moszkowski, CFA/Sandra Goldschneider
Research Analyst/Research Analyst
MLPF&S
Bank of America Merrill Lynch
New York
Goldman Sachs Group: Company Update BUY
SEC case seems limited, but reputational fallout worrisome
SEC brings a civil fraud case relating to alleged misrepresentation in a CDO SEC case alleges a GS Vice Pres. structured a subprime synthetic CDO and misrepresented to buyers that the reference collateral had been independently selected, when in fact, it is alleged, it was selected by a hedge fund seeking a way to short subprime。
The accused is relatively low-level, and alleged loss is a manageable sum…
This is clearly a serious charge, but so far it is a one-off, it is civil rather than criminal, and the individual charged is at a relatively low level in the firm. All these factors mitigate the seriousness to an extent, in our view. The total alleged losses of $1bn would, if they were the basis of a settlement, be about $1/ share。
…But there is considerable uncertainty
On the other hand, it’s not clear whether there are more such cases; nor whether the SEC might refer the case to the DOJ for criminal charges; nor how serious the reputational effects might be for GS and for the industry more broadly。
Selloff seems overdone
Balancing all these factors, it’s our view that the 13% decline in the share price as we write this is an overreaction, ahead of what we believe will be strong Q1 results next week。
Case hinges on alleged misrepresentation of collateral selection
The SEC has brought a civil fraud charge against GS and one of its Vice Presidents in the matter of a single 2007 CDO tied to subprime mortgages. The essence of the case is that GS and VP Fabrice Tourre are said to have structured the deal at the behest of Paulson & Co., a hedge fund manager that sought to benefit from short positions in what it viewed as doomed subprime mortgages. The crux of the SEC’s case is that GS is alleged to have represented to the CDO’s buyers that an independent agent had selected the subprime bond collateral but that, it is alleged, Paulson in fact selected the collateral。
Potential Settlement amount probably manageable, but reputational hit harder to measure
The case states that GS received a $15 mm structuring fee and that Paulson earned, and investors lost, about $1 bn. The extent of GS’ direct financial exposure would thus seem to be about $1bn, or around $1 per share, assuming a judgment or (more likely in our view) settlement with the SEC were taxdeductible. However, the reputational damage could be considerably greater, unless it becomes clear that there are no other such cases against the firm and that no more individuals are charged。
SEC not commenting on next steps/ DOJ involvement
This is, as noted, not a criminal case, though the SEC noted on its conference call that it is not empowered to bring criminal charges, and would not comment on whether it might refer the case to the Dept. of Justice to pursue such charges. Criminal charges against a firm are potentially crippling and are extremely rare。
Accused is a VP, which appears to insulate senior management and the firm
The fact that the only individual charged here, after what was presumably a very thorough investigation, was a Vice President rather than a Managing Director or higher, is relatively reassuring news for GS, since it seems most likely that the potential for more serious charges rises dramatically the higher up the management chain the charges go. The action is being brought by a new unit of the SEC focused on structured and complex securities and it is not clear whether or not other deals, either by GS or other firms, will be subject to other cases。
Mark Lane/Rachel Carter
Equity Research
William Blair & Company, L.L.C。
Chicago
Goldman Sachs Group, Inc. (The)
Stock Rating: Outperform
Company Profile: Core Growth
Symbol: GS (NYSE)
Price: $184.27 (52-Wk.: $113-$194)
SEC Charges Against Goldman: Not Good News for Sentiment/Regulatory Reform Debates, but Not Likely a Direct, Major Impact on Business
• During market hours on the morning of April 16, 2010, the SEC issued a news release and held a conference call charging Goldman Sachs with fraud in structuring and marketing a subprime-backed collateralized debt obligation (CDO). The allegations relate to a deal in which hedge fund Paulson & Co. paid Goldman ($15 million) to
structure a transaction in which Paulson could take short positions against mortgage securities based on a belief that the securities would experience significant credit losses. When the deal was marketed to investors, it is alleged that Goldman did not tell investors the motivation for the sale and that Paulson was involved in selecting which securities would be referenced in the CDOs. Structuring a CDO of this type is not prohibited per se, but the fraud allegation is centered on Paulson’s undisclosed involvement in the selection of the referenced securities. Investors are alleged to have lost more than $1 billion in the CDO, known as ABACUS 2007-AC1. Paulson has not been charged with any wrongdoing and the charges are directed at the Goldman Sachs individual who was responsible for structuring and marketing the deal。
• Our expectation is that these charges could potentially result in a hefty fine and some potential liabilities to investors who lost money in the marketed CDO, but will not hurt Goldman’s business in any material fashion. Moreover, we believe that any potential negative financial impact will be more than manageable given Goldman’s strong ongoing earnings power and significant financial flexibility. From its perspective, Goldman has stated that the charges are completely unfounded in law and fact and it will vigorously contest them and defend the firm and its reputation. We also believe these charges appear to be isolated, and a lot of other SEC-led charges have already been brought, and will continue to be brought, against financial firms relating to the financial crisis, including circumstances similar to the charges brought against Goldman. The SEC also continues to be under serious scrutiny for poor regulation during the financial crisis and is under pressure to bring charges against more financial firms; these charges in particular were sensationalized, in our opinion。
• While we do not envision a major, direct negative impact, these charges are highly visible and do nothing to help eliminate the negative perception of investment banks (or hedge funds)， during a time of intense debate regarding increased regulation of the industry and the derivatives markets, as well as determining sources of culpability for the financial crisis. Goldman and Morgan Stanley have both lagged a bit year-to-date before today, in large part because of concerns about increased regulation and political scrutiny. We have stressed that one key factor for outperformance for the industry is to gain clarity on regulatory reform and distance itself from negative headlines—Friday’s charges do not help sentiment in the space, at least in the near term. As politicians continue to criticize the large investment banks for their adverse role in the financial crisis, we believe these charges could have some negative impact on the already ambiguous financial services regulatory reform outcome。
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