Goldman Sachs Group Inc on Thursday agreed to pay $550 million to settle civil charges that it misled investors in a subprime mortgage product, the U.S. Securities and Exchange Commission announced on Thursday.
The settlement, which brings to a close one of the most tumultuous chapters in the powerful Wall Street firm's 140 year history, sent Goldman shares up 2.8 percent in after-hours trading, adding to a four percent gain in the main session.
The following is reaction from industry analysts and investors:
DANIEL RICHMAN, LAW PROFESSOR AT COLUMBIA UNIVERSITY IN NEW
It would be strange after reaching some sort of settlement with Goldman as a regulatory matter, the SEC turned around and worked with the U.S. Attorney's office on a criminal case.
It regularly is the case that a civil settlement of this sort allows a company to move forward without looking over its shoulder.
It is possible the final document will involve the Justice Department as a signatory. In the absence of that there's no criminal resolution.
PRAVIN RAO, AN ATTORNEY AT PERKINS COIE LLP IN CHICAGO AND
A FORMER FEDERAL PROSECUTOR AND SEC LAWYER:
There is one factor that is pretty strong that I think the settlement won't be challenged and that is the size of it.
Goldman has always said is it did not commit fraud. Not admitting fraud charges is a big win right there. Another thing is they are announcing earnings next week.
This is not a global settlement with the criminal side. It is only on the ABACUS deal, so the criminal side may look at but if there are other investigations that could bear fruit this is not going to stop it.
ADAM PRITCHARD, A PROFESSOR OF SECURITIES LAW AT THE
UNIVERSITY OF MICHIGAN LAW SCHOOL:
The timing of the enforcement action was when the financial reform effort was struggling and then they announced the case and now the SEC has new enforcement power and now the case is going away. The cynical person would say the enforcement action was brought to bring the Frank-Dodd bill through Congress.
JAMES COHEN, ASSOCIATE PROFESSOR OF LAW AT FORDHAM
UNIVERSITY IN NEW YORK:
Goldman is doing it because it is still early compared with how long this could actually run. People at the firm have discovered that the publicity is very, very bad for them.
They should have done it sooner. They stake their reputation on their integrity and there were serious questions raised by the accusations.
It will soften the desire of the prosecutor to obtain criminal charges.
MALCOLM POLLEY, STEWART CAPITAL ADVISORS, PRESIDENT AND
Relative to the quote unquote investor losses it (the fine) was puny but that they got a settlement of this size is a pretty good deal.
They (Goldman) effectively close the book on this chapter. They get a little bit of a black eye now but the public has a short memory.
RYAN DETRICK, SENIOR TECHNICAL STRATEGIST, SCHAEFFER'S
INVESTMENT RESEARCH, CINCINNATI
The settlement was obviously leaked and Goldman is up in the after-hours. This is one bit of certainty that has been removed. This is clearly a positive for Goldman and for all the financials. And now we can move on and look at fundamentals and the rest of the earnings season.
KEVIN CARON, MARKET STRATEGIST AT STIFEL, NICOLAUS & CO IN
FLORHAM PARK, NEW JERSEY
It's a $550 million settlement and judging by the market reaction, stock market participants are celebrating the settlement on the theory that market participants were looking for a much harsher settlement than that.
They pay $550 million and they get an $800 million pop in their stock price. The implication of that math is that the market had discounted a more harsh treatment and relative to what the market was looking for they got a pass, they got off easy.
KEN CRAWFORD, PORTFOLIO MANAGER AT ARGENT CAPITAL
MANAGEMENT IN ST LOUIS, MISSOURI
This gets another of the items behind Goldman. We had finreg, now this, so investors can try to begin to figure out what the franchise is and what profits it can generate going forward...A few months ago it was headline news and now it's done -- that's got to be a positive for the company.
BILL FITZPATRICK, OPTIQUE CAPITAL MANAGEMENT, EQUITY
This is a very favorable outcome for investors. The dollar amount wasn't really going to be the issue, particularly if it was under a billion dollars and this has put some closure around what was a black eye for Goldman Sachs.
I think Goldman was incentivized to settle just so it could put it behind them. I tend to think the SEC had a very difficult argument here in trying to prove fault with Goldman Sachs. But if you're Goldman I think the objective is to put this behind you and move forward.
Anything under a billion dollars I think is a victory of sorts for Goldman.
JACOB FRENKEL, LAWYER AT LAW FIRM SHULMAN ROGERS AND FORMER
SEC ENFORCEMENT ATTORNEY
From the day the SEC filed this case, all political perceptions aside, Goldman Sachs needed to settle regardless of whether it could have prevailed on the merits. For a regulated entity, it is virtually impossible to go the distance in litigation with the SEC.
The parties reached this settlement before Goldman Sachs ever filed a substantive piece of paper in court. Despite the fierce denials by Goldman Sachs, since the filing of the complaint, it is clear there have been intense negotiations to resolve this case before Goldman Sachs had to file its first pleading.
JACK ABLIN, CHIEF INVESTMENT OFFICER, HARRIS PRIVATE BANK
Investors are going to greet this announcement with a sense of relief.
It was in the best interest of both sides to get this thing out. Goldman doesn't have to reserve so much uncertainty in its earnings, and a beleaguered regulator gets a sense of accomplishment.
All in all, banks should be able to deliver strong results tomorrow. I see no reason to think that they aren't gonna blow the doors off earnings expectations, and the shares should reflect that.
Unfortunately, bank and finance earnings are really a reflection of dead machinations and not necessarily an economic reality, so investors are rightfully taking that information with a grain of salt.
BRAD HINTZ, ANALYST, SANFORD C BERNSTEIN,
If that's all it is, that's a good deal.
Goldman wants a normal relationship with their regulators. Hopefully they got it.
The SEC had to win a political battle. Goldman Sachs had to win an economic battle.
(Reporting by Grant McCool, Tom Hals, Matthew Lynley, Richard Leong, Ed Krudy, Elinor Comlay, Martha Graybow and Steve Eder)