I’ll have more on the GS settlement tomorrow — but I keep getting emails from people insisting that since Goldman’s stock rallied, it is, therefore, a victory. I’ve always hated that analysis, but since so many of you keep bringing it up:

Pre-indictment, GS was north of $180. It closed Friday at $146. Its still some 20% below where it was before the SEC enforcement action began.

Goldman Sachs has lost $15 Billion of market capitalization. Isn’t that a significant part of the penalty? Or do we just ignore that?


via yCharts

Category: Legal, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

40 Responses to “Indictment to Settlement: $15 Billion Market Cap Loss”

  1. Jojo says:

    I would have liked to see them have to admit that they were guilty. Why are companies allowed to pay a fine and not admit guilt anyway?


    BR: Very few do for civil liability reasons. GS actually admitted to more than most . . .

  2. Chief Tomahawk says:

    That Dec. ’08/Jan. ’09 low seems to strangely be at about the level of $25 billion cash infusion from the ‘notorious’ AIG bailout + $10 billion ‘loan against the car title’ from Warren Buffet (or whatever his ‘payday’ loan assistance was termed.)

  3. MayorQuimby says:

    Apples and oranges. Look at how cash flow is affect and nothing else. Market cap??? C’mon. Wal Mart lost a chunk too. What does that have to do with anything???


    BR: About as little a Friday’s 2% rally in GS

  4. mbelardes says:

    While I disagree with you that this is a loss for Goldman, I completely agree with you that both the Stock Rally and Percentage-of-Revenue Arguments for this being a win for Goldman are completely ridiculous and a classic sign of a media and populace unwilling to look at the business and legal aspects of this whole thing.

    I’ve always said that when someone’s sole reasoning comes from “well look at the stock price RIGHT NOW/AFTER MARKET/TODAY/ANY-SHORT-TERM-PERIOD” then they aren’t using any reasoning at all.

    You are completely correct in pointing out the absurdity of those arguments.

    Only caveat, Goldman has been doing stock repurchases this whole time (or at least they said in their Q1 earnings call that they did in Q1 and planned to continue in Q2). I’d be interested to see an analysis of that when they release earnings.

  5. joestrummerlives says:

    “Goldman Sachs has lost $15 Billion of market capitalization. Isn’t that a significant part of the penalty?”

    Simple answer: No. That’s not a penalty. That’s a consequence.


    BR: Touché!

  6. gordongekko00 says:

    GS has lost similar market cap as its peers so far this year. Just check out MS WFC BAC JPM.

  7. dalidan says:

    Interesting….but the graph loss in market cap value since the SEC announcement is deceiving. Sure the SEC issue played a part, but it is one -although a major one- still just one of many factors that caused the loss in value. I think you need to adjust for performance of the DOW, which was down over 5%.


    BR: I don’t disagree with your general premise — XLF or SPX is probably a better measure, than we would need to adjust relative to GS’s Beta (correlation with broader market).

    Even that is insufficient — you could argue that since the indictment, Goldman dragged down the XLF, and the rest of the market.

    This is why I don’t love these sorts of analyses — too much guesswork . . .

  8. Petey Wheatstraw says:

    Regardless if GS has been penalized adequately by the market, or not, I have a hunch that if you looked into their entire enterprise, you’d find business practices rife with criminality and/or regulatory negligence. I wonder if the market has priced-in that potentiality.

    At this point, I don’t know if GS or any other investment bank or securities firm has any reputation for honesty in their business dealings, whatsoever.

    I don’t know if the SEC penalty was adequate or not, but if, as you said in an earlier post, BR, “the penalty fits the crime, not your net wealth,” then the penalty could and probably should preclude you from engaging in the line of business in which you committed your crime or act of malfeasance/chicanery in the first place — either by court order or because your sorry ass is in prison.

    Once again, “the Corporation did it.”

    BTW: Fab’s a goner.

  9. red_pill says:

    Is the SEC/Khozumi doing the right things to protect the financial system, ensure I-Banks are penalized when they misrepresent contractual terms to clients?. I would argue they are at this point, but let’s see how long this lasts and whether they overreach. The amount of the fine is not large enough for certain people unless it permanently cripples GS because that firm has become a symbol of Wall Street greed and of a class of firms which flirt with legal and moral boundaries (and occasionally cross as in this case) to benefit themselves at the expense of clients and the system. The punishment should be commensurate with the crime, should it not? What is the legal justification for using a % of revenues/mkt cap/etc penalty? People are asking the wrong questions and focusing on the $500 mln sound bite instead of the long term implications of the decision.

  10. Andy T says:

    This seems like a silly thing to argue about. The S&P is down 12% over the same period of time. GS is down 21% but it’s a high beta stock.

    Goldie is still up over 300% from the 2009 lows….

    GS has been a double since everything else peaked in 2000…..

    Bunch of losers.

  11. hotpanera2 says:


    While you’re certainly not the only to do it, why have you been referring to a civil action as an indictment? I am a lawyer, too, not a criminal one, and I have never heard a civil action being referred to as an indictment befoe this one. It certainly sounds more dramatic than a “civil fraud action”, but that doesn’t make it right.

  12. Chief Tomahawk says:

    Off-topic, but an interesting home video (two minutes long):


  13. MayorQuimby says:

    Seriously BR – this is one of the most ridiculous questions or assertions (I can’t tell which) you’ve made to date (since I’ve been reading). Every time a stock drops it’s a “penalty” of some kind? Shit. These skells STOLE $12.9 BILLION DOLLARS from a broke populace via AIG. $500 mil is not only a slap on the wrist but it actually ENCOURAGES THEM to keep raping the taxpayers. Why not? With a FOUR PERCENT penalty for raping people, why not rape them again???

  14. ezduzit says:

    until goldman et al are forced to separate their banking activities from their brokerage activities, this is all a bunch of nothing but idle chit chat.

    goldman is not a bank. if it was they would have branches and credit cards. bank of america is not a brokerage firm except for their uncalled for acquisition. same goes for the rest of them

    glass steagall, without qualifications is a must. after that it is time to get tough.

    money penalties are meaningless. jail time is meaningful. goldman is laughing on the way to the one bank, which they probably own.

  15. philipat says:

    In both cases, the market cap and the penalty, it’s the Shareholders who lose. I have not seen, nor I expect to see any announcement from the VS that the bonus pool will be reduced so as to apportion the consequences, such as they may be, more fairly.

  16. gmherger says:

    Shareholders’ paper losses aggregate $15,000,000,000 in market value. The stock price may go up, it may go down next week, next month, next year. A shareholder that sells below basis will realize a loss. Otherwise, there is always “hope.”

    July 2010, GS pays $500,000,000 to the Federal government in a “civil money penalty.”

    July 2009, the Federal government realized approximately $2,300,000,000.00, or 23%, on a bailout of GS. GS paid interest on the UST $10 billion and on warrant buyback payments.

    Seems the UST is ahead $2,800,000,000 on GS in 12 months.

    I think (danger!) that GS became a bank holding company in late 2008, so that if needed it could access TARP and other bailouts. I guess requiring AIG to pay its liability caused AIG to need $85,000,000 taxpayer sponduits.

    AIG owned a bank or two before the end of the world as we knew it. However, federal law does not alllow unlimited credit to be extended from a bank to its affiliates in a BHC.

    GS was not a bank before October 2008.

    I was watching the “Three Stooges” on AMC this morning. I thought they were dead (RIP). Not so, we’re posting comments on the web.

  17. Robespierre says:

    You are incredibly naive. Do you really think that any of the big shots at GS (or BofA, or City) gives a damn about the reputation of the company? Look at how much money Rubin made as a director at City while it almost burnt to the ground. Do you think that he is consumed with guilt? Is he going hungry? Wake up Barry punishing a company and not the individuals is totally meaningless and useless. It sends no signal to WS. It does NOTHING about bad (or illegal) behavior. Repeat after me: GS feels no pain, love, guilt sadness etc. It is only an entity and not a real person. It will pass any penalty to its customers or the government but never to its leadership. The question you have to ask yourself is why is that trader (the french guy) not being charged criminally. Can it be that he has information on the “big shots”? Who knows. They will sweep this under the carpet faster than a flash crash in the market.

  18. philipat says:

    It’s also interesting that the SEC voted “Along party lines”. Silly me, I had assumed that the role of an Agency such as the SEC was simply to impliment the law?

  19. Romberry says:

    I think the market cap has to be ignored, at least in the short term. Short term movements are meaningless. If the decline sticks, it may mean something. Thing is, I don’t think it will stick. Markets are not rational.

  20. alfred e says:

    @robespierre: Incredibly intelligent and thoughtful insights. Don’t know that I’d trash BR, but I definitely find your observations dead on. Nailed it.

    As well as those that indicated that the SEC vote was strictly along party lines. THAT IS A REALLY BIG DEAL.

    So what kind of really, really fucked up banana republic are we living in anyway.

    Oh I know, the republicans and elites are going to get their way.

    The best the Dems can do is pull a Bill Clinton. Say what the people want to hear, and do what the elites want. And then the Dem “leaders” get their millions too. Byrd, Daschle, Pelosi ( as if she needs it – as in tuna company subsidies) the list goes on and on.


  21. carleric says:

    If this does nothing else one would hope that the incestuous relationship between Republican/Democratic “leaders” and Goldman Sach guarding the chicken coop will be broken but I fear I am much too naive. Some one (heck it could have been Jim Cramer) was lauding Goldman’s commitment to public service…..I think this stems from wanting to be inside the chicken coop rather than on the outside watiing for the unwary….always remember the AIG handout…..

  22. obsvr-1 says:

    BR: great to see someone keeping some balance in the reporting — too bad it doesn’t have the same exposure as CNBC, FOX Bus….

    Market CAP is one measure to evaluate the settlement fine and/or impact, however it is very hard gauge the real impact in the context of the overall market environment. Market CAP fluctuations make for an interesting debate, but the real impact is that GS has to pay out $550M of real money.

    $550M is a lot of money even to GS (even though it is downplayed by the media)
    * $550M is 36x the $15M reported that they made on the ABACUS 2007-AC1 deal
    * $550M is 75% of what GS pays out in annual dividends (1.40 per share x 515M shares = 721M) — Given the Greed of the Exec Management it wouldn’t surprise me if they try to reduce the dividends to pay for the fine.

    Market Cap matters to the common stockholders — Example GS reported the last 10Q that they have repurchased 13.2M shares at avg cost of 172.15. Even with the pop in share price after the SEC announcement these shares are underwater.

    Q2 -2009 GS sold 46.7M shares at $123 = $5.75B — Part of the TARP repayment funds (GS Exec’s unleash their bonuses from the restrictions of TARP)

    Q2-2010 GS repurchased 13.1M at $172 = $2.25B [ effectively sell low (123) buy high (172) ]

    I believe if you look at GS history of stock repurchases that these Treasury Shares are well underwater — Used to hand out Restricted Stock to the Exec’s and 400 “partners”

    Common Stock Holders in GS get the shaft, over and over again.

    What I do not understand is why the GS Stockholders are not enraged. The shareholders should be calling for the disgorgement of bonuses or claw back Restricted Stock from the executives and senior management (partners) to pay this penalty. After all, it was the bad behavior of the firm and management that put GS into the position of legal action from the SEC and other participants and investors tied to the CDO shenanigans leading to the loss of $550M, potential for future lawsuits and loss of reputation value.


    Hopefully the SEC and/or DOJ is looking into the other participants, especially J. Paulson, who were actively involved in the creation of the ABACUS like CDO deals. ABACUS 2007-AC1 enriched Paulson with $1B — seems there is fertile ground to uncover the other $14B from Paulson and other bad actors.

  23. chris says:

    Barry do you feel G.S. would be at new highs without the charges at all? They would not follow most financial stocks(down)?G.S. would not follow the general market moves? You are not comparing apples to apples.

  24. alfred e says:

    @obsvr: Wow!

    Correct. So where are those common stockholders? Buried under layers of brokers and fund managers and rules and regulations?

    BR might want to pick up on this thread you just hit on.

    Common stock share owners are typically deer in the headlights of an oncoming car.

    It might be fun to visit how common shares are typically controlled and voted.

  25. mbelardes says:


    Where did you get that Q2 repurchase data? I think you are looking at Q1 cuz GS hasn’t released earnings yet for Q2 and their price was nowhere near $172 in Q2 but it was Q1.

    I’m interested to know how many shares they bought this Q and at what price, not that the plunge after Q1 didn’t hurt.

  26. mbelardes says:


    Barry isn’t naive. The beatdown on stock price is definitely a penalty that slaps some care into Goldman.

    Every publicly traded company is required to disclose stock and stock option compensation.

    Here is goldman’s, page 25 and on: http://www.sec.gov/Archives/edgar/data/886982/000119312510078005/ddef14a.htm#toc30412_25

    The Execs DEFINITELY care about firm reputation and performance if it sees their stock compensation disappear and their current positions eviscerate. Lloyd went from $40 million (2008) to $900,000 (2009) though I suppose he may have simply not exercised some of his restricted stock and options, but that backs my point anyway.

    Page 27, they have hundreds of thousands of unexercised options that got lit up in the fall from $180 to $130. ($50 x 600,000 means Lloyd got dinged to the tune of $30 mil from options alone, on paper)

    All I’m saying, they may not care in that warm and fuzzy way but they care in their own pocketbook.

  27. mbelardes says:

    I can’t find it on there (it’s late) but I think for 2010 Lloyd’s comp is like $9 mil in RSUs. Page 46 says he has some 3.3 million shares. x $50 in loss per share and he is definitely caring about the firms reputation.

  28. obsvr-1 says:


    Yes I made an error – should be Q1-2010 NOT Q2-2010

    (March 1, 2010 to
    March 31, 2010) 13,180,250 shares @ avg of $ 172.15

    Unfortunate time to buy back stock, 16 days before the Apr 16th SEC announcement.

  29. philipat says:

    Sorry, forgot. Thanks BR for the Heads Up on YCharts. New to me and a very valuable resource.

  30. obsvr-1 says:

    @mberlardes — Executive Pay

    The excessive pay, cash bonus and stock awards were the years leading up to 2008 – so the execs have already taken a large bite ($B’s) out of the company.


    I see Lloyd at 3.3M shares as well , so don’t forget to add $4.62M per year in dividend payments.

    2010 Proxy Statement

    The $9M in RSU awarded in 2010 is for FY2009
    FROM PROXY: Our NEOs were granted equity awards for fiscal 2009 in February 2010; accordingly, these awards are not in the table

    2009 – 600K base pay with an additional $263K in “all other comp” including:
    401K Matching $9.4K; Life Ins, Exec Life Ins …
    Exec Med & Dental Plan premium $56.9K (wow must be some plan – More than most people make in a year)
    Financial and benefits counseling $57.2K (another wow — I thought they were already financial gurus )
    Car $70K

    I also found that there are 400 “partners” (VPs, PMD) that have a base pay of $600K + Stock awards which aggregate amount is not visible…

    Paying out 40+% of Revenue in payroll + BONUS is an outrageous gross enrichment of the executives & partners without a fair consideration to shareholders.

    GS could go along way in improving their image by increasing the dividend, start by doubling it to 2.80 / share per year. This would be 1.5B paid out,, for Lloyd it would move him from 4.62M to 9.2M in dividend income.

    So, Lloyd’s GS net worth north of $4B with around $14M annual comp — not bad given that it would have been zero if the taxpayer didn’t step in to stop the collapse.

  31. clinton says:

    lol. Come on. The fine was a pathetic joke, a nice little dog and pony show to quell any public outrage. You CANNOT be this naive.

  32. Robespierre says:

    mbelardes Says:
    July 18th, 2010 at 2:00 am


    “The Execs DEFINITELY care about firm reputation and performance if it sees their stock compensation disappear and their current positions eviscerate. Lloyd went from $40 million (2008) to $900,000 (2009) though I suppose he may have simply not exercised some of his restricted stock and options, but that backs my point anyway.”

    Execs control BoD and compensation boards. So when their options are way underwater they have those 2 spineless groups to issue (or re-issue) more to them at the lower price. Or they get more via bonuses because you know if they don’t do that all theses “talent” will move to the competition. As a matter of fact, every study that I know of has demonstrated that there is no correlation between exec compensation and how well a company does. BTW look at the Fin. reform that just passed: The original power being given to shareholders to have a saying in compensation was “lobbied” out of the final bill. Why do you think that is?

  33. dead hobo says:

    BR naively cheered:

    Goldman Sachs has lost $15 Billion of market capitalization. Isn’t that a significant part of the penalty? Or do we just ignore that?

    It’s a non event, full of little, signifying nothing. On any given day, stocks can go up or down a lot. Oil prices used to rise several percent due to flatulence in Nigeria.

    Just as movie stars can return to top billings after years of drug induced instability, all it will take for GS to rise back to the top of the food chain in all respects is a few months of manages press and some good earnings.

    Oh my! Traders need to undergo ethics training. Horrors! This will certainly chase the devil out of the souls of all who work there. (HA HA, I’m kidding … disclaimer for the irony impaired).

    To put this penalty in simpler terms, they bargained down a felony to a traffic ticket and negotiated 1/2 the fine away. They also have to go to traffic school and can’t deny they got a ticket. GS kicked ass and will recover nicely. The ‘market cap’ issue is less than a distraction, utterly meaningless, and only something to write about, if that.

  34. Robespierre says:

    If you really want to know who won/lost this is my analysis:

    1) Democrats can now claim that they are “getting tough” with the bankers. They will play this at the Nov. elections (BTW this is why the SEC Republicans didn’t wanted to deal).
    2) Mr Blankfein now that this issue went away the BoD will shower him with millions. Even if he is asked to leave the firm watch for a huge departure golden parachute and other perks.
    3) The financial “syndicate”, now they know that whatever they do they can fix by having common shareholders pay a fine. Their winnings they keep and there is no chance of criminal prosecution to them.
    a) Republicans (see 1)
    b) GS common shareholders (the shares they have will not be re-priced)
    c) The American people who will be fool again by the Democrats into believing that they are there to look after them.
    d) The rule of law: If you belong to one of the “syndicates” that control the government your penalties are very different that if you don’t. Top 0.1% get different “justice” than the rest.


  35. wcc101 says:

    Yes the law does count in this whole mess of a case. But the REAL Big Picture is that GS played a HUGE role in ripping down all of the legal and ethical standards (whatever was left of them) that existed prior to the subprime meltdown. Technically what GS did with the Paulson deal may have been illegal (tho GS naturally denies it), but from the perspective of how it fit into what was going on THROUGHOUT the banking “industry” in the 2000′s–most egregiously, the contagion of fraud among mortgage brokers, appraisers and lenders (including the now deservedly defunct WaMu and Countrywide), GS’s Paulson deal was just a small piece of the picture. Class actions against GS, Lehman, M-S, Bear, AIG among many others were underway before the housing market collapsed–on charges similar to what the SEC finally got its paltry $550m “penalty” for–bulshitting customers and stealing their money while laughting all the way to the bank.

    The legal issue is not to be underestaimated, but the MENTALITY on Wall STreet is what will bury the financial system eventually–it almost succeeded in doing so in 2008l Next time we may not be so lucky. Khuzami seems like a well-intentioned guy, but he is undoubtedly hamstrung by politics and banking industry influence.

    If anything is going to REALLY change fore the better, it will be grassroots investors, saying “Enough” who do it. Lord knows the White House hasn’t got a clue about what really happened in the years leading up to 2008… so leadership from elected leaders is not something we can hold our collective breathes for.

  36. Invictus says:

    I’m gonna go with the folks who wrote to Barry and said that “since Goldman’s stock rallied, it is, therefore, a victory.” My argument begins and ends with the chart below:

    (Click on chart for larger version)

    What we have above are the relative moves — since charges were brought against Goldie — of GS, MS, DB, CS, UBS, BAC, and JPM. I’ve erased the legend which identified each company’s line so you can view the group without knowing who’s who. Looking at the chart, does it really look like anyone was punished, which is to say their stock price suffered disproportionately from the group as a whole? Would you say it’s easy to pick Goldie out of the group?

    If you guessed that Goldie’s the light blue line that performs worst early on, you’d be correct. However, the stock got its mojo back fairly quickly, got right back in line with the group, and has recently outperformed, culminating with the up move the day after the settlement was announced. You’ll note that it’s poised to once again — given recent trends — be the group’s best relative performer.

    This may have been more than the typical wrist-slap, but not by much, in my opinion. (And, by the way, their disgorgement was all of $15MM. A rounding error.)

  37. obsvr-1 says:


    totally agree the entire mortgage industry was full of bad actors – from negligence to outright fraud, certainly a target rich environment for the SEC and DOJ.

    But this thread was narrow in discussion around the GS settlement.

    Grass roots from investors would be great — need a million man march on the Annual Meeting — wishful thinking as the grass roots are busy trying to stay afloat (to mix the metaphors)…

  38. StatArb says:

    How did GS

    compare vs. . . . JPM , WFC , MS , BAC , C . . . . . over that same time period ??

  39. [...] yes, while the $550 million represents a mere fortnight’s worth of profits for Goldman, the stock has been shellacked since the original charges, erasing nearly $15 billion in market [...]