SEC vs. Goldman
The SEC said last Friday that it wants to charge Goldman with fraud. This has caused quite some turbulence in the markets. But what is the SEC’s charge against Goldman Sachs actually telling us?
Goldman is charged of not informing the public about a hedge fund betting against one of their own products - which they had sold to its customers. You can find an article about it here.
The SEC may be right in charging Goldman Sachs and that’s a problem for the company. But it isn’t the money they should fear. Goldman has enough money to pay a huge penalty and stay healthy. The main problem for Goldman is confidence. A charge like this is a big hit for consumer confidence, no matter how it ends. What will investors think if they find out that the company they dealt with did business against them?
Goldman doesn’t rely mainly on doing business with small customers. Ok, they have a lot of products and a lot of small customers, but the main business, the big business, they do with their bigger investors, institutionals and their own funds. So the company won’t take a hard hit if they lose a bunch of small customers or is found guilty of fraud. But their reputation will get a big hit and that hurts. Goldman has a good reputation. It does so because even Warren Buffett is involved in the company and that always helps.
What the SEC did, is setting a sign. They told people that they will call every company to justice that has done wrong before and during this crisis. This is a message for the people on Main Street to get their confidence in financial regulation back. But on the other hand it could devastate consumer confidence in financial institutions again.
Now markets are asking, which financial company the SEC will charge next. Worst case it could be one that is not in such good economic condition like Goldman and will be hurt seriously.
I think the SECs actions are a bit risky, but they may need this to gain back the respect they want and they did this in a time when economy and markets got stable enough to take this message. But we as traders have to look out for more news like this. Cause now financials are back in the main spot and that could be dangerous for market performance.
From a risk management point of view all bankshares out there in the market just got a bit riskier.
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