Goldman Sachs’ $550 million settlement with US regulators yesterday will benefit the firm by ending three months of uncertainty at an affordable price. Now the rest of Wall Street begins calculating the cost.
Investors welcomed the deal with the Securities and Exchange Commission (SEC), saying the company won key points: The cost was below some analysts’ estimates of at least $1 billion; no management changes were required; and Goldman Sachs said the SEC indicated it doesn’t plan claims related to other mortgage- linked securities it examined. The stock’s late surge on anticipation of a settlement yesterday added more than $3 billion to the company’s market value, and it climbed further after New York trading closed.
“You’d have to look at it as a victory for Goldman,” said Peter Sorrentino, senior portfolio manager at Huntington Asset Advisors in Cincinnati, which manages $13.3 billion including Goldman Sachs shares. “This takes a cloud off the stock.”
In the settlement, unveiled less than two hours after the Senate passed legislation to reform the financial system and avert future crises, Goldman Sachs acknowledged that marketing materials for the 2007 deal at the centre of the case contained “incomplete information.” In its April 16 suit, the SEC accused the firm of defrauding investors in a mortgage-backed collateralised debt obligation by failing to tell them that hedge fund Paulson & Co, which was planning to bet against the deal, had helped to design it.
In its original public response, Goldman Sachs had called the SEC’s case “unfounded in law and fact” and maintained that it made all disclosures.