COMMENTARY Goldman Sachs announced Wednesday it faces lawsuits of more than $15.8 billion in mortgage securities. This is 30 times more than what the investment bank said it faced three months ago. Despite this, Goldman only raised its estimate of "reasonably possible" losses to $2.6 billion from $2 billion.
I thought these guys were supposed to be numbers geniuses.
OK, before we go any farther, let's all just take a moment and enjoy the fact that Goldman is finally getting walloped over the mortgage securities fiasco. I never knew Schadenfreude could feel this good. Prior to this, the closest anyone had come to hurting the vampire squid of Wall Street was last year when the SEC slapped it on the tentacle with a $550 million fine.
While half-a-billion would impress some companies, it's barely a rounding error for GS. Last year its net revenues were more than $39 billion. That's why the prospect of someone going after it for at least $15 billion has to put a smile on the face of everyone in the U.S. not named Lloyd Blankfein.
The reason all this litigation hit right now is because the statutes of limitation were about to expire. So what we're witnessing is a legal pig pile. (Did I just insult pigs?) The biggest increase in Goldman's potential liability is a suit filed in September by the Federal Housing Finance Agency. The FHFA accused Goldman of misrepresenting the quality of $11.1 billion worth of residential mortgage-backed securities.
I know. I'm as shocked as you are that anyone could think Goldman would do such a thing.
Goldman's explanation for all these lawsuits only increased the firm's risk by $600 million? Because that's the number they made up. "Management is generally unable to estimate a range of reasonably possible loss," the firm said in a filing with the SEC.
The SEC has been after all the big banks to disclose more about legal proceedings and provide estimates of possible losses. The lack of information in Goldman's response makes it clear the SEC has as much clout with Wall Street as it has ever had.
Still, here's hoping the private sector's legal eagles can wrest some significant financial payout from Goldman. Lord knows the Feds aren't going to.