Goldman Sachs (GS): Dick Says Sell

Rochdale’s Dick Bove downgraded his rating on Goldman Sachs (NYSE:GS) to Sell from Neutral with a $120 price target (prev. $163).

The stock is down 7 pts so the s-t trade here is done. Yet, I think the comments from Bove are worth a read:

Goldman may have become the government’s favorite target. This is not good for shareholders.

There have been two events in the past few hours that put Goldman Sachs at greater risk. The first was the decision by the Commodity Futures Trading Commission (CFTC) to request a fraud complaint against Goldman Sachs. The second was the conviction of Raj Rajaratnam on insider trading.

“In its quarterly filing with the Securities and Exchange Commission Tuesday, Goldman said that the agency’s staff has orally advised it that it intends to recommend the agency bring “aiding and abetting, civil fraud and supervision-related charges” against Goldman Sachs Execution & Clearing.

The CFTC, the filing said, is basing these charges on allegations Goldman knew, or should have known, that its broker-dealer client’s subaccounts at Goldman were accounts belonging to customers of the broker-dealer and not the broker-dealer’s own accounts.”

The fact that Mr. Rajaratnam was convicted may embolden the CFTC to pursue this case more aggressively and it is possible that a trial will follow. This is the problem with this stock. The company has become a target for any political thrust any agency wishes to pursue. It has no defenders.

The government clearly wants something from Goldman and Goldman is not willing to budge. I have repeatedly indicated that this battle is no good for shareholders and this potential charge is simply more evidence of that fact.

In 1932, Andrew Mellon was believed to be the richest man in the United States and he had just served 12 years as Treasury Secretary, a post he was relieved of by President Hoover.

When President Roosevelt took command he needed to personalize his belief that Republicans and capitalists had caused the Depression and that they needed to be punished. He, therefore, decided to sue Mr. Mellon for tax evasion even though neither the Treasury nor the Justice Departments believed Mr. Mellon had done anything wrong.

The President continued his suit for about six years. By the end of that time Mr. Mellon had died and given the United States the National Gallery of Art. The Supreme Court found in Mr. Mellon’s favor but it did not matter. The President had found his foil and had achieved his goal.

It is becoming very clear that Goldman Sachs is the government’s foil for the causation of the financial crisis. In my view the company has done nothing to remove itself from this position. Until it does so or until the government exacts its penalties, this stock is a bad purchase. It does not really matter who is right. What matters is getting this issue behind the company.

Notablecalls: According to Bove the pressure on the Justice Department to bring a criminal lawsuit against Goldman is building to a high pitch.

Talking to some L-T holders of the stock, the view seems to be that Goldman is becoming a disappointment as the otherwise one-off issues keep surfacing again and again.

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