Goldman Drops $20 Billion

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The news that US federal prosecutors have opened an investigation into certain aspects of Goldman's sales and trading activities further depressed the firm's stock price Thursday.

The possibility that Goldman could face possible criminal charges, in additional to the civil suit brought by US regulator The Securities and Exchange Commission (SEC), hit the firm's shares hard. Closing down 9.39% Friday, Goldman's market cap has now taken a $20bn hit in the last 11 trading days.

Bank of America Merrill Lynch has downgraded its rating on the firm from a 'buy' to 'neutral'. Analyst Guy Moszkowski wrote: 'We continue to believe GS has long-term earnings power beyond what is discounted in the share price. However, it is very difficult to see the shares making further progress until the matter has been resolved'.

And Standard & Poor's analyst Matthew Albrecht has downgraded the stock from a 'hold' to a 'sell'. Albrecht said: 'Though traditionally difficult to prove, we think the risk of a formal securities fraud charge, on top of the Securities and Exchange Commission fraud charge and pending legislation to reshape the financial industry, further muddies Goldman's outlook'.

Walter Todd, a portfolio manager at Greenwood Capital, told The New York Daily News: 'The door was opened when the SEC announced their fraud charges. I think you're going to have things of this nature popping up for the foreseeable future for Goldman, but the criminal investigation obviously escalates it to the next level...It's going to be an ongoing overhang for these guys'.

Note - Goldman's shares closed up 2.96% at $149.50 in New York trading Monday.

Sources - Bloomberg, The New York Daily News, The New York Times, The Wall Street Journal

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