According to Eliot Caroom/The Star-Ledger, Goldman Sachs "has agreed to buy back $25.5 million of auction-rate securities from New Jersey investors and [to] pay nearly $1 million in penalties."
In a Reuters report, Goldman also has to pay $1.4 million settlement with Massachusetts "over the bank's marketing and sales auction rate securities."
Along with Bank of American and Morgan Stanley, Goldman Sachs is being investigated by New York Attorney General Eric Schneiderman for its securitization practices, as reported by Bloomberg Businessweek. Schneiderman is looking at "mortgage practices and the packaging and sale of loans to investors."
Finally, The New York Times says Goldman Sachs is losing its shiny reputation. Indeed, Goldman is looking quite "average."
Goldman No Longer Laps the Field
By Jeffrey Goldfarb, Bob Cox and Lisa Lee -The New York Times
Goldman Sachs has lost its luster. The firm earned a best-in-class reputation for its history of profitability and navigating upheaval. But it seems less assured lately. In fact, Goldman is in danger of looking downright average.
It’s not the first time. Goldman has been sent reeling by shocks, from Penn Central’s bankruptcy in 1970 to Russia’s default in 1998. But the Goldman advantage comes from an ability not only to climb off the canvas but to thrive in the face of adversity.
Today’s investors are expressing doubt, or at least not giving the firm led by Lloyd C. Blankfein the benefit of it. Over the last decade, Goldman’s shares have outperformed those of the biggest American banks, including JPMorgan Chase and Morgan Stanley, as well as the Standard & Poor’s 500-stock index. But they have tumbled 16 percent this year, lagging rivals and the broader market.
One reason is Goldman’s struggle to get out of the headlines and clear its name in Washington even after last year’s record $550 million settlement with the Securities and Exchange Commission. The bank still faces the possibility the Justice Department will come after it or some of its people. Two analysts cut their ratings on Goldman’s stock last week for that reason.
Goldman’s gold-plated advisory business has been disappointing, too. For example, instead of its normal perch atop the United States merger rankings, nearly halfway through the year it ranks a dismal sixth, according to Thomson Reuters. That may help explain Monday’s reshuffle at the firm’s investment bank.
The company is not even so sure of itself anymore. Top executives told Barclays Capital last week that uncertainty about financial reform meant it could not stand by its long-term high-teens target for return on equity.
And while Goldman still commands a valuation premium to its largest rivals, it is trading at just 1.1 times book value. That implies it will barely cover its cost of capital. Five years ago, around the peak of the boom, Goldman fetched 2.6 times book, nearly twice JPMorgan’s multiple.
Read the rest of the article here
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The Derivatives Market’s Helpful Enemies
Indeed, today the market for derivatives is oligopolistic, with a few banks running huge profit margins. And, regardless of whatever political motivations might lie behind the latest investigations, this market concentration is a real problem. According to a 2009 study by the European Central Bank, the five largest CDS dealers were party to almost half of the total outstanding notional amounts, while the 10 largest CDS dealers accounted for 72% of the trades. The markets for other derivatives are not much better.
Over-the-counter trading also contributes to the opacity of derivatives markets, further reducing competition and increasing the margin enjoyed by the traders – and the prices that final users (mostly industrial firms) must pay. The combined profits of the key players in this market total $80 billion, which represents a massive tax on the real economy.
Nevertheless, the journey is still a long one. The major investment banks are fully aware that every day that they delay appropriate market regulation, they earn millions of dollars for their managers’ bonus funds. It is no surprise that the reform process is taking so long.
http://www.project-syndicate.org/commentary/zingales9/English
Thanks for the link re derivatives. It will be interesting to see what rules the CFTC and Gensler come up with in regards to derivatives and speculation.
Good approach but the senate & house will find a way around this too. Friend recently foreclosed on. Wells fraudulent assignment to itself (the servicer) 34 days AFTER filing for foreclosur¬e. MERS website says this loan is owed by an investor who wishes to remain annom. Most likely the investor got screwed when the note was never transferre¬d so the investor couldn't foreclose. Wells stole this house with the help of MERS magically assigning it to WELLS, without ever paying a dime for it in the first place! By the way...this was also a VET guaranteed loan...so they're going to defraud the VET admin on this too. Until our courts uphold the laws governing mortgage backed securities and state laws regarding the real party of interest we won't see anything except continued theft by the banks.
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