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Thursday, 15 March 2012

What is behind the media assault on Goldman Sachs?

Have Goldman Sachs ripped off the wrong people? 
Goldman Sachs hit the mainstream news today following the publication of a resignation latter in the New York Times which amongst other things indicated that the executives of the company had referred to their customers as 'muppets'.

Goldman Sachs though has been mentioned on numerous occasions on this blog. It is worth noting that when Lehmann Brothers collapsed in 2008 the second weakest bank at the time was none other than Goldman Sachs. Goldman Sachs famously donated to Barack Obama's 2008 campaign, CNN reports the total at $994,795 in 2007 and 2008. Perhaps that is why Goldman Sachs and not Lehmann Brothers got the bailout package from the Bank of America.

CEO in 2007 John Corzine later became head of MF Global which filed for bankruptcy in Oct 2011. Under administration it seems that $1.6 billion is missing from clients funds. Today a lawsuit has been lodged against the executive for this impropriety and Goldman Sachs have been fined $7 million for mishandling clients money.

The suspicion is that something untoward has happened with Corzine at the heart of the matter. Goldman Sachs is now feeding off the carcass of a company that its former CEO moved over to head.

Reuters report
"MF Global unloaded hundreds of millions of dollars' worth of securities to Goldman Sachs in the days leading up to its collapse, according to two former MF Global employees with direct knowledge of the transactions. But it did not immediately receive payment from its clearing firm and lender, JPMorgan Chase & Co (JPM.N), one of the sources said.
The sale of securities to Goldman occurred on October 27, just days before MF Global Holdings Ltd (MFGLQ.PK) filed for bankruptcy on October 31, the ex-employees said. One of the employees said the transaction was cleared with JPMorgan Chase.
At the same time MF Global, which was run by former Goldman Sachs head Jon Corzine, was selling securities to Goldman to raise badly needed cash, the futures firm was also drawing down a $1.2 billion revolving line of credit it had with JPMorgan, according to one of the former MF Global employees.
JPMorgan spokeswoman Mary Sedarat said the bank did not withold money because of the line of credit. She declined further comment on details of the transactions."
Perhaps some of the securities transferred are what makes up the $1.6 billion in missing client funds.

As it stands now the price to earnings ratio of Goldman Sachs is an incredible 27.28 and the dividend yield is over 1% but investment money is flowing OUT of Goldman Sachs and the shares in the company are oversold (i.e. more have been sold than there actually are to sell) indicating that there may be rocky times for this company ahead.

The sudden breaking of silence by Goldman Sachs employees cannot be co-incidental, are the two giants of US investment banking falling out over this?