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Goldman Sachs Group Inc. was downgraded by its broker, Morgan Stanley, who spoke of "the risks and uncertainties" surrounding the investigation into Goldman's role in the 1MDB scandal.
Analyst Betsy Graseck has reduced his rating to equal weight after being overweight for at least three years. It also reduced its stock price target by 22% to 296 USD, the second lowest of 29 analysts surveyed by FactSet, compared with 291 USD.
The downgrade comes after the stock has already dropped 17% since former board chairman and CEO Lloyd Blankfein reportedly met with people involved in the 1MDB scandal, accused of conspiracy to launder and steal money. money from a Malaysian. sovereign fund, 1Malaysia Development Bhd.
Do not miss: 2 ex-Goldman bankers indicted by the Ministry of Justice in the 1MDB scandal in Malaysia.
The stock
GS + 1.21%
closed Tuesday at its lowest level in two years and plunged 43% since its March 12 closing record of $ 273.38. It rebounded 1.4% in the midday trade on Wednesday.
Graseck stated that his primary concern with the potential impact of the 1MDB investigation is the time it will take to resolve the problem, the fines and penalties that may result, as well as the costs incurred by Goldman in satisfying the regulation.
"These risks, together with potential key risks in the coming months – additional prosecutions, additional regulatory investigations, internal reviews – determine our equivalent weighting," writes Graseck in a note to customers.
She said that although the stock's valuation multiple has already reached a level comparable to the one it was in the depths of the financial crisis, "we do not expect significant expansion of multiples as long as we are not close to solving these problems. "
Graseck said the stock traded at 7.1 times its earnings per share estimate for 2019, well below the five-year average of 11 times and "relatively in step with the bottom of the financial crisis. "7 times.
In terms of potential penalties, Graseck said Goldman had generated approximately $ 600 million of debt issue fees that raised $ 6.5 billion for 1MBD. She added that the provisions of the Foreign Corrupt Practices Act provided for fines of up to twice the amount of fees collected, in addition to reimbursement of costs.
"However, the end result is far from certain," said Graseck, with Goldman being able to get a reduction in penalties or face additional fines and penalties for violation of other provisions or laws.
Goldman's shares have fallen 24.2% since the beginning of the year, while the SPDR Financial Select Sector Exchange Traded Fund
XLF, + 1.26%
lost 5.0% and the Dow Jones Industrial Average
DJIA, + 0.57%
slipped 0.4%.
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