July 16, 2010

Business As Usual

Just in time before the US Senate passed financial overhaul bill, your favorite friendly investment bank did it again. Goldman Sachs agreed to pay a record $550 Million to settle SEC charges related to Subprime Mortgage CDO.

From the Press Release:
Washington, D.C., July 15, 2010 — The Securities and Exchange Commission today announced that Goldman, Sachs & Co. will pay $550 million and reform its business practices to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.

In agreeing to the SEC's largest-ever penalty paid by a Wall Street firm, Goldman also acknowledged that its marketing materials for the subprime product contained incomplete information.

In his article Goldman Agrees to Carry On as Usual, Felix Salmon said it best when he wrote:

Well, that’s reassuring, knowing that from now on Goldman has promised not to break the law. Goldman (GS) has also consented to an agreement that when it puts together new mortgage securities, it’ll run any prospectuses or term sheets by its legal or compliance departments. As if it wasn’t doing that already. And there’s lots more like that: people on the mortgage desk have to attend training seminars on disclosure! Goldman “shall provide for appropriate record keeping”!

$550M is apparently the largest settlement ever paid on Wall Street.  Putting things in perspective though, that's about two week's worth of net income for the investment bank.  Here are the numbers:

As per latest financial statements, Goldman Sachs had a Gross Profit of $12.78 Billion with a Net Income of $3.46Billion in the first quarter of this year.  In the period from January 1st to March 31st of this year, we had 64 working days.  $3.46 Billion ÷ 64 = $54 Million. Therefore, it would take about 10 working days to rake in the entire amount of this record settlement. 

As Felix Salmon said:  Well that's reassuring...


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