Goldman Sachs (GS) received a subpoena from the office of the Manhattan District Attorney yesterday morning. The DA is investigating the role GS played in the financial crisis. When this news came out the stock plunged 4% or $5, to just $2 off of 52 week lows, before recovering to close down about 1% on the day.
The subpoena stems from testimony GS executives gave to the U.S. Senate’s Permanent Subcommittee on Investigations. Senator Carl Levin, the Democrat of Michigan, who headed up the Congressional inquiry, called on the Justice Department and the Securities and Exchange Commission to investigate whether Goldman executives perjured themselves and misled the committee. The committee’s report on the financial crisis accused Goldman of misleading buyers of derivatives related to mortgages and profiting at the expense of clients.
Goldman has yet to respond to this inquiry, saying “We don’t comment on specific regulatory or legal issues, but subpoenas are a normal part of the information request process and, of course, when we receive them we cooperate fully.”
With such a dark cloud possibly looming over GS, it might surprise you that a prominent analyst from one of largest US banks is recommending buying the stock at these levels.
This week JP Morgan (JPM) analyst Kian Abouhossein upgraded shares of GS to overweight from neutral and put a price target of $175 on the stock. Abouhossein said any possibly negative news developments are already reflected in the bank’s share price. It is true that this subpoena is not necessarily a shock as last month it was widely reported that Goldman expected to receive subpoenas from the Justice Department.
However, not all analysts agree with Abouhossein. Dick Bove of Rochdale Securities thinks the GS should be sold. He said that the U.S. government is looking for a bank to punish for the financial crisis, and it has selected GS. Bove said on Thursday that, “The government has made a decision that Goldman is a high profile risk to society. You don’t often see a government go after a company and the government will continue to go after them until Goldman changes its management and restructures.”
As for me, I am currently staying away from any long-term investment in GS. Though it was expected that the Justice Department was probing GS, it was not previously known that the District Attorney was investigating Goldman. This leads me to believe that there are too many “unknowns” surrounding this situation. Though there could be some profitable some short-term trades off of the increased volatility in shares of GS, I think the risks are too great to buy and hold the stock at this point.
What do you think? Are you going to stay away from buying GS? Or do you think now is an opportune time to take advantage of the fear surrounding the investment bank? Please leave your comments below.