I spent most of Friday thinking about the news of Goldman Sachs record $550 million fine from the SEC (here's the detail of what they were accused of).The last fine of any consequence the SEC levied like this, in my memory, is the $100 million fine of UBS back in 2004 for supplying dollars to Iraq.That was pretty serious and yet this fine is almost six times more six years later. So it could be thought of as a big deal ...... but it’s not.It’s actually peanuts.It’s chump change.
Which brings us to money.
This case is about money.It’s about lots of money.Not the fine, where Goldmans is only paying a $550 million fine. That’s two week’s profit, based on the $12 billion they made last year. In fact, it’s less than two week’s bonuses, as they paid out $16 billion in bonuses last year.To put that in context, imagine you’re earning £16,000 ... this fine would be £550. About the level of a fine for being drunk and disorderly.Is that what the SEC thinks of Goldmans’ actions?They were just being drunk and disorderly all over the markets?OK, lesson learned. Big deal.
No, this was about bigger money.
For example, their stock price tanked 20% to just $140 in the months since the fraud investigation began, losing about $15 billion in Goldman's shareholders pockets, many of whom are Goldman's staff.
Since the fine was resolved, the share price has bounced 10% and will soon be back to pre-SEC charges levels.But the market capitalisation the bank lost – about $15 billion worth – was a far bigger fine than the $550 million the SEC required. With that gone, it’s going back to the good old times again, which brings us to the final point: morals.Does Goldman Sachs have a moral compass?Goldmans make money at the expense of punters like AIG and Royal Bank of Scotland, by selling them sh*t and saying it’s your risk if you buy it.It actually appears like Goldmans were the bookie who not only took the bets but fixes the race.You don’t believe that.Well the Committee for the Fiduciary Standard released a video of Goldman Sachs executives squirming under questioning from Senators this spring, as hearings over the SEC lawsuit were held.The video shows Senator Carl Levin asking Lloyd Blankfein, Goldman CEO: “Do you think (investors) care that something is a piece of crap when you sell it to them?”Blankfein’s answer is no. As far as he’s concerned, the investor is purely concerned about the level of risk.In other words, the investor and his broker have no relationship related to suitability or appropriateness – core mandates under MiFID – but purely that the punter has to understand the risk, not their dealer, and they have to be happy to take on board that risk even if their broker is selling them a piece of crap.Great.So RBS et al lose billions and get offered a token amount in return.Of the Goldmans fine, RBS is being offered $100 million. They lost over $800 million. Those numbers don’t work in my book, and now that Goldman has been found guilty and, more importantly, ADMIT to misleading clients through their marketing materials in this deal, expect several high profile court cases to follow.
Background articles to this blog post include:
- Goldman paying $550M to settle civil fraud charges (Washington Post)
- Too Big To Hurt – Goldman Sachs Shakes Off SEC Fine (FDL)
- Goldman Sachs settles to make its scandal die, and Congress passes financial services reform. What does it mean for Registered Investment Advisors (RIA)? Not much, yet (RIABiz)
- After Goldman’s payout, will RBS make a claim? (Independent)