Bank of America Cuts Goldman on Federal Probe

Goldman Sachs (GS) extends to fresh session lows as Bank of America (BAC) downgraded the stock to Neutral from Buy and cut the target to $160 from $220, following  reports that federal prosecutors are weighing criminal fraud charges on top of the SEC fraud charges against Wall Street’s most profitable firm.

According to BofA, the “downgrade is prompted by news reports filed Thursday evening by the media including the Wall St. Journal indicating that federal prosecutors have opened an investigation of GS in connection with its trading activities, raising the possibility of criminal charges.” – [FTAlphaville]

Bank of America said that their new $160 price target discounts a return on equity of 12%, by valuing the shares at 1.2x BofA’s estimate for year-end BVPS of $133.

Guy Moszkowski, an analyst at Charlotte, N.C.-based Bank of America, wrote in a report today that the bank continues to believe that “GS has long-term earnings power beyond what is discounted in the share price”. “However”, he added, “it is very difficult to see the shares making further progress until the matter has been resolved.” – [Bloomberg]

Standard & Poor’s also cut its rating of GS shares to a “sell” from a “hold”, citing the company’s growing legal woes.

Goldman Sachs dropped $12.30, or 7.68 percent, to $147.95 at 11.00 a.m. in New York Stock Exchange composite trading.

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