Goldman may need billions more dollars to deal with legal issues. But, is the stock really a good investment right now?
The investment bank that protesters and conspiracy theorists love to hate is finding itself under fire once more.
According to its filings with the US Securities and Exchange Commission, Goldman Sachs is being investigated for its foreign exchange trading activities. On Wednesday, Goldman CFO Harvey Schwartz said the company was raising its estimate of legal losses by $500 million and said it may be underreserved by $4 billion. For the most recently reported quarter, the company's net income was $1.5 billion while net assets were $77.6 billion.
Goldman isn't the largest name to have expensive legal problems. JPMorgan Chase has about $23 billion set aside to deal with its legal issues.
"While [JP Morgan] is a much larger institution than Goldman, it's clearly able to absorb that and stay profitable," says CNBC contributor Zachary Karabell, president of River Twice Research. Still, Karabell believes Goldman may have something even bigger to worry about – the state of the financial industry in general.
"I think these are industries in secular decline," says Karable. "You can say, 'Hey, Goldman Sachs' stock is up 28% this year, isn't that great?' But, the markets are up 25% and we can go through hundreds of names that are up 40%, 50%, 60% that I think are higher-quality companies that represent long-term growth opportunities. In no way does Wall Street and the investment banks represent that kind of long-term growth opportunity, either in their trading revenue or in their deal revenue. And, that's a good thing for the rest of the market."
"The stock has been in an uptrend all year long," says Jeff Tomasulo, Managing Partner at Belpointe. Tomasulo thinks the investment banks are going to move along with the market as a whole. "I can't see Goldman Sachs or a JPMorgan or any of these stocks really rolling over. And, if you see them rolling over, that's a sign that it might lead the market lower."
To see Karabell on the fundamentals and Tomasulo on the technicals go head-to-head on whether Goldman Sachs is a good investment, watch the video above.
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