Goldman shares slump ahead of expected fireworks at Senate hearing Tuesday
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Shares of Goldman Sachs Group fell to a 2 1/2-month low Monday ahead of the grilling company executives are expected to face on Capitol Hill on Tuesday.
Goldman stock dropped $5.37, or 3.4%, to $152.03. The percentage loss was the largest since the shares plunged nearly 13% on April 16, after the Securities and Exchange Commission stunned investors by charging the company with fraud in connection with its marketing of a subprime-mortgage-related investment in 2007.
Although most bank stocks were lower Monday amid investor jitters over the financial system overhaul bill pending in the Senate, Goldman’s drop was double the 1.7% loss of the average financial stock in the Standard & Poor’s 500 index.
Goldman on Monday released the prepared testimony that Chairman Lloyd Blankfein will give to the Senate Permanent Subcommittee on Investigations, which for 18 months has been probing the role big banks played in the financial crisis.
Blankfein’s remarks echo the company’s response over the weekend to company e-mails and other documents released by Sen. Carl Levin (D-Mich.), the investigations subcommittee’s chairman. Levin accused Goldman of being a “self-interested promoter of risky and complicated financial schemes that helped trigger the [financial] crisis.”
He also accused Goldman of trading against its own clients by selling them mortgage-related securities, then betting against the housing market by “shorting” such securities by engineering trades that would pay off if the investments plunged in value.
Levin released another batch of company e-mails and documents on Monday, and reiterated his allegation that Goldman made “billions of dollars from betting against the housing market . . . in some cases at the same time it was selling mortgage-related securities to its clients. They have a lot to answer for.”
Blankfein, in his prepared remarks, will tell the Senate that Goldman was “not consistently or significantly net ‘short the market’ in residential mortgage-related products in 2007 and 2008.” The firm, he asserts, was simply using short positions to be prudent. “We believe that we managed our risk as our shareholders and our regulators would expect.”
But the Goldman chairman also takes a stab at sounding contrite -- sort of:
As you know, ten days ago, the SEC announced a civil action against Goldman Sachs in connection with a specific transaction. It was one of the worst days in my professional life, as I know it was for every person at our firm. We believe deeply in a culture that prizes teamwork, depends on honesty and rewards saying no as much as saying yes. We have been a client centered firm for 140 years and if our clients believe that we don’t deserve their trust, we cannot survive. While we strongly disagree with the SEC’s complaint, I also recognize how such a complicated transaction may look to many people. To them, it is confirmation of how out of control they believe Wall Street has become, no matter how sophisticated the parties or what disclosures were made. We have to do a better job of striking the balance between what an informed client believes is important to his or her investing goals and what the public believes is overly complex and risky.
-- Tom Petruno