24/7 Wall St. » Goldman Sachs

Ernst & Young Gets Pulled Into Lehman Ugliness

247wallst — Tue, 20 Apr 2010 14:37:25 +0000

There have been questions about the role of Lehman Bros auditor Ernst & Young since an investigation into the bankruptcy done by an independent party–Anton R. Valukas, Chairman of Jenner & Block — was release. The 2,200 page report indicated that E&Y was at least incompetent in its final Lehman audit which was for year ending November 2007. The term Valukas used in his document was “professional malpractice”. That judgment in and of itself is not enough to set off litigation, but it is close. A group of unsecured Lehman creditors told the bankruptcy judge today ”that it wants information from Lehman’s former auditor about the transactions to determine, for example, whether the group could sue parties who profited from Lehman’s use of the deals,” according to Bloomberg.

To the extent that in legal actions one thing often leads to another, the creditors may be more interested in why E&Y did not catch Lehman’s use of Rep0 105 instruments to temporarily improve its financial picture. The creditors may have little actual interest in “parties who profited from Lehman’s use of the deals.” E&Y is a huge and rich target and its negligence in catching Lehman’s financial tricks could be the source of significant negligence suits.

The press has gotten over-excited by the prospects of seeing E&Y in court making the comparison to the Enron audit that brought the energy firm’s auditor, Andersen, down in 2002. But, the Andersen problem was substantially a case of fraud on the part of the audit firm as it became clear that some of its workers shredded Enron documents to cover their trails.

What is highly likely is that any litigation by either the government or a class of shareholders will put E&Y in a position not unlike Goldman Sachs Group’s (NYSE: GS). Guilty until proved innocent.

Douglas A. McIntyre

Filed under: Accounting Tagged: Ernst & Young, Goldman Sachs, Lehman Bros

Goldman Sachs SPAC IPO Killed (GS)

247wallst — Wed, 28 May 2008 17:14:17 +0000

Liberty Lane Acquisition Corp. was going to be the first real special purpose acquisition company, or SPAC or blank check company, from Goldman Sachs Group Inc. (NYSE: GS). The key word in there is "WAS."

After the close of trading today, Liberty Lane announced that it decided it would not proceed with its planned IPO at this time. You can guess the reason: due to market conditions. We covered Liberty Lane as "Goldman Sachs’ first real SPAC IPO" in full detail on its filing date.

The flow of SPAC IPO’s has dried up significantly, and some are even closing and returning funds. But there was another issue in the Liberty Lane SPAC IPO. Goldman Sachs has a premium name, and it wanted premium terms. Each unit was "one share and a half of a warrant," which is less than the traditional "one share and one warrant" per unit in almost every other SPAC out there.

It would have been nice to see how this was going to pan out, although this one had the odds stacked against it after such a large amount of SPAC’s are still in the hopper and as many are having a hard time getting to market because of current conditions.

You can join our open email distribution list to hear about other issues IPO’s, SPAC’s, in secondary offerings, private equity, and special financings.

Jon Ogg
May 28, 2008

Goldman Sachs Conviction Buy List Changes (CI, WLP, CNH)

247wallst — Fri, 08 Feb 2008 08:13:20 +0000

Goldman Sachs is making a change to its CONVICTION BUY LIST this morning. The firm is adding CIGNA (NYSE: CI) and dropping WellPoint (NYSE: NYSE: WLP) from the list. Both stocks are still maintained as officially being BUY rated there, but Goldman Sachs sees a near-term opportunity in CIGNA shares. In fact, the 6-month price target on CIGNA gives an implied upside of 30%.

CNH Global N.V. has also been booted off of the CONVICTION BUY LIST, although that is because of a stop-loss feature. The firm is maintaining a BUY rating and says it is not a seller at current levels. The stock is down some 22% since its addition to the list on November 27, 2007.

Jon C. Ogg
February 8, 2008

Goldman Sachs Conviction Buy List Changes In Gold Sector (ABX, FCX)

247wallst — Thu, 31 Jan 2008 07:56:14 +0000

Goldman Sachs is making a key change in the gold sector this morning. The investment banking giant is adding Freeport-McMoRan Copper & Gold (NYSE: FCX) to the Americas Conviction Buy List. This stock is replacing Barrick Gold (NYSE: ABX) on the Americas Conviction Buy List.

FCX is noted as being down over 15% year to date and being inexpensive based on a 49% upside from current prices to Goldman’s 12-month $129.00 price target. Its leverage in copper is perhaps one of the more favorable issues according to the note, and Goldman notes that it believes copper consumption will be least affected of the base metals in a Western economic slowdown.

Barrick’s removal from the Americas Conviction Buy List comes on the heels of strong performance, which is actually up 29% since being added to the list on November 27, 2007. Barrick is also up some 90% since April 2006 when it was first given a Buy rating. Goldman Sachs is still maintaining its official Buy rating on Barrick along with a $66 price target. The firm believes this was the beneficiary of higher gold prices over $900/ounce as the stock outperformed mining and metals peers. It also believes this is a top gold investment vehicle.

This call looks more like a relative value call based upon performance and value, and it could even be an implied pairs trade in the sector to some.

Jon C. Ogg
January 31, 2008

A New Goldman Sachs Index? You Bet Your Life (GS)

247wallst — Fri, 14 Dec 2007 12:29:01 +0000

Goldman Sachs Group, Inc. (NYSE: GS) has launched the first index that will allow the market to measure, manage, and trade exposure to longevity and mortality risks in a standardized, transparent, and real-time manner.

Longevity and mortality are the risks that realized lifespan differs from expected lifespan, creating an economic consequence, often a price change in an asset or liability. Holders of mortality risk — typically institutions such as insurance carriers and reinsurers — are economically exposed to a decrease in lifespan (i.e. if you die 4 years after you sign up for a $200,000.00 life insurance policy), while holders of longevity risks (i.e. if you live to 100 instead of 78 and on a pension that an employer must pay)– pension funds, annuity writers, the social security trust fund or life settlement investors — are exposed to an increase.

QxX.LS, the first in an expected series of indices, will be a representative sample of the US SENIOR INSURED population over the age of 65. The initial index will reference a pool of 46,290 de-identified lives and is based on a population designed to address risks to which major market participants are exposed and is independently tracked monthly, providing real-time publication of mortality information.

Published index rules and trading calculators are available on the QxX website at http://www.qxx-index.com, ensuring observability and transparency. Hedge funds, banks and asset managers with existing positions in the cash longevity market (pensions, viatical settlements, defined benefits, etc), or those with an interest in gaining synthetic exposure to this uncorrelated risk class, will be able to use the index to either hedge existing exposure or to initiate investments.

If you have ever heard of viatical settlements or if you know someone who is over 80 and healthy still clipping a pension on top of social security, then you’ll understand that this may actually be the first of many such measurements. Prior to that, an actuarial had to use historical data that isn’t always complete.

This may sound heartless but it’s a great start for the long-term strength of some of these financial institutions. Should you expect more of these index variations? You bet your life.

Jon C. Ogg
December 14, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Goldman Sachs Oil Call Overshadows ExxonMobil Earnings (XOM, SLB, BP, BHI, TSO, XLE, OIH)

247wallst — Tue, 30 Oct 2007 12:37:18 +0000

Goldman Sachs may not be reversing its entire bullish stance on oil after oil traded over $93.00 per barrel on Monday, but it is recommending some old fashioned profit taking. Goldman Sachs noted specifically that it is not necessarily calling a top here, but it is encouraging to take some profits and lock-in some gains. Here was the prior equity analyst call on oil names out of Goldman Sachs.

At the end of last week, 24/7 Wall St. was looking at ExxonMobil (NYSE:XOM) ahead of earnings and we noted that its chart was not indicative of a great earnings report being priced-in. Schlumberger Ltd. (NYSE:SLB) has been a disaster since its earnings were greeted with major selling, and BP (NYSE:BP) already noted that Q4 was going to be ugly. The stock was not following oil prices and the price at the pump according to gasbuddy.com was not following the per barrel price trend of black gold. Naturally, there is a "be careful what you wish for, you might get it" lesson here: yesterday at the pump the price was back over $3.00 per gallon.

This report isn’t entire out of line with Goldman Sachs’ recent lifting of its Super-Spike price band where it noted the possibilities under extreme circumstances for $135/barrel and $4.50/gallon at the pump. Today’s call looks at a downside risk of $80/barrel at the end of Q1 2008.

You can bet this won’t change the stance of many oil bulls. Ken Heebner of CGM is very bullish on oil properties and T. Boone Pickens recently called for $100/barrel. Jim Cramer even went on the line and noted some key oil takeover names in Canadian Oil Sands Trusts.

The truth is that the fundamentals right now do not seem to justify the current prices, but 24/7 Wall St. still believes that $100 can easily be hit based upon the trading patterns. There has still yet to be a single net delivery miss in and to the U.S. If a net delivery miss were to occur you can imagine what the trading reaction will be, regardless of the price. Traders are in charge of oil, just ask Tesoro’s (NYSE:TSO) analyst/economist that was saying just last week how the fundamentals in today’s oil markets should have oil in the $60′s rather than the $80′s or $90′s.

We still wonder if Baker Hughes Inc. (NYSE:BHI) is going to make an acquisition after that last filing for it to raise $2 Billion in cash, which has been a signal in the past since it does not need cash.

Oil is down almost $2.00/barrel at $91.60 on last look. The Energy Select Sector SPDR (AMEX:XLE) is down over 2% to $75.47 (year range $53.89 to $78.50) and the Oil Services HOLDRs (AMEX:OIH) is down 2.8% at $188.28 (year range $125.81 to $204.62).

Jon C. Ogg
October 30, 2007

Wal-Mart Catches A Goldman Sachs Upgrade (WMT)

247wallst — Wed, 17 Oct 2007 15:11:31 +0000

Wal-Mart (NYSE:WMT) has been upgraded by Goldman Sachs in a late afternoon research call today. The bulge bracket firm raised Wal-Mart’s rating from a Neutral to Buy. Barron’s also ran an article mid-day with a note citing "Wal-Mart Will Rise Again." Interestingly enough, the company issued a release noting that the head of Wal-Mart’s outreach to environmental groups was leaving the company.

Shares ticked up on this news late in the day. Shares had been down around $45.75 and then popped up to $46.35 before settling into the $46.00 area right at 4:00 PM EST for an unofficial close. Wal-Mart’s 200-day simple moving average of $46.73 looks to be adding some resistance.

Jon C. Ogg
October 17, 2007

Microsoft Earnings: Goldman Sachs Must Know Something (MSFT)

247wallst — Tue, 16 Oct 2007 13:05:45 +0000

Goldman Sachs has one of the more premiere research shops for the bulge bracket firms on Wall Street and investors look to its "Conviction Buy List" with regularity. It might not seem odd that Goldman Sachs added Microsoft (NASDAQ:MSFT) to its Americas Conviction Buy List on a regular day. But when it is about a week before earnings and the day Intel and others are reporting it makes it very difficult not to wonder if the analyst didn’t get some insight that might not be available elsewhere.

Goldman Sachs’ note from analyst Sarah Friar says that it expects upside to Microsoft’s first quarter results based upon the numbers out of Halo 3, the aQuantive buyout, currency benefits, and new product cycles like Office 2007 and Windows Server 2008 driving what Goldman estimates at 12%+ growth into fiscal 2009. Goldman Sachs also noted that the current valuation remains at a significant discount to the software group and in-line with S&P peers, while sentiment is "almost overwhelmingly negative." The summary concludes that this will take the stock higher on a better quarter.

Another wild card here is that these notes are no longer from Rick Sherlund, the former Goldman Sachs analyst that was considered the honcho of all analysts that covered Microsoft. Microsoft was removed from the Conviction Buy List back on April 10, 2007 and shares closed at $28.21 that day. Shares are up 1.2% today at $30.42. Estimates were already raised last week and Goldman Sachs has a $37 target for the stock. It isn’t our take that the analyst got anything secret, but maybe some solid research came in ahead of these other tech earnings. There is either some performance chasing going on, or there is some strong insight here from investigative research.

With a spin-off of Bungie Studios there may be more to look at.
Cramer thinks that Microsoft may continue acquiring ad properties.
Its last seen short interest….
HealthVault is a move into healthcare.
It is going deeper into virtualization.
Would Microsoft buy Yahoo!?
A post-Gates Microsoft?

Jon C. Ogg
October 16, 2007

Goldman Sachs Pairs Trade: Long Maxim, Sell Intersil (MXIM, ISIL)

247wallst — Thu, 04 Oct 2007 07:30:01 +0000

Maxim Integrated Products (MXIM) has found itself in a strange predicament over its listing status, but Goldman Sachs doesn’t seem to care. Maxim (MXIM) is being added to Goldman Sachs’ Conviction Buy List, although it says there is no change to above-consensus estimates or to the 14% projected upside at a $33 price target. Goldman is adding Intersil (ISIL) to its Conviction Sell List, although it already has a sell rating on the shares. Goldman is not changing its $29 target with 13% downside.

Interestingly enough, the basis for this call appears to be a pairs trade (arbitrage on price moves) with a LONG MXIM and SHORT ISIL thesis. It is based upon valuation gaps of nearly 30% on 2008 P/E ratio estimates and a 50% gap on EBITDA projections, despite estimates of 11-13% earnings growth for both. The 20% underperformance of MXIM along with the delisting are looked at for a reversion. Solid trends are also noted at both companies, although Goldman Sachs noted that this looks priced in at ISIL based upon positive pre-announced earnings (Goldman believes this is not priced in on MXIM). There is even a note that a possible market inefficiency exists due to Thomson using GAAP EPS for MXIM and non-GAAP EPS for ISIL.

Jon C. Ogg
October 4, 2007

Emerson Added to Goldman Sachs Conviction Buy List (EMR, DHR, TYC)

247wallst — Thu, 27 Sep 2007 07:57:02 +0000

Goldman Sachs has raised its "Neutral" rating on Emerson Electric (NYSE:EMR) and added it to the Conviction Buy List. Goldman based the upgrade on positive earnings outlook and an attractive risk versus rewards analysis. Its 2008 and 2008 estimates were raised and it now sees 12% upside to the $52.00 prior target with a new target set at $58.00. Goldman Sachs also noted that Emerson is one of its six well positioned multi-industry primes at this stage of the cycle and lists catalysts as upward earnings revisions and even lists M&A in the fold. As a "flight from the dollar" this works as well, because Goldman Sachs lists 52% of sales being non-U.S and noted exposure to oil and gas.

On the reverse, Goldman Sachs downgraded Danaher Corp. (NYSE:DHR) to Neutral and downgraded Tyco International (NYSE:TYC) to a "SELL" rating.

Emerson Electric shares are trading up over 2% pre-market at $52.75. Danaher shares are down 1% at $82.00 pre-market and Tyco shares are trading down 1.5% at $44.00 in pre-market activity.

Jon C. Ogg
September 27, 2007