(Goldman Sachs and other stock closing prices, Bove note on Goldman added to this update)
NEW YORK (
shares tanked Friday, dragging the entire financial sector lower, after the
Securities and Exchange Commission
charged the bank with fraud.
plummeted 12.8% to close at $160.70 after the
and one of its vice presidents for defrauding investors by failing to disclose to investors vital information about its structured and marketed a synthetic collateralized debt obligation, or CDOs, tied to the performance of the subprime residential mortgage-backed securities.
"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, the SEC's director of the Division of Enforcement.
Khuzami said Goldman wrongly allowed hedge fund client
, which was betting against the mortgage market, to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.
"The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation," Goldman said in a response letter.
Earlier in the session, Goldman shares touched an intraday low of $155.55.
Stockpickr Answers Anyone else nibbling at the financials today?
Rochdale Securities analyst Dick Bove said that guilty or not, Goldman Sachs is still a buy.
"Goldman's stock is likely to come under continuous pressure for a few weeks as more and more revelations show up in the press," Bove wrote in a research note. "The weakness in the stock should be viewed as a buying opportunity because the company's secular outlook is positive."
American International Group
shares initially spiked on the Goldman fraud charges before relinquishing gains. The stock ended down 2.1% to $39.15.
The Wall Street Journal
reported that AIG realized a $1.5 billion to $2 billion loss last year after the insurer's Financial Products unit unwound credit-default swaps insuring about $3 billion of
AIG still has outstanding credit-default swaps with Goldman on $1.3 billion in Abacus CDOs, some of which are tied to the performance of commercial-real-estate bonds, people familiar with the trades told the
Following the SEC's announcement, the Financial Sector Select SPDR dropped 3.7%, as most bank stocks tumbled.
fell 4.7%, and
retreated by 2.8%.
Bank of America
fell 5.5% to $18.41, having traded slightly lower in the aftermath of the bank's first-quarter earnings report.
posted a first-quarter profit of $3.2 billion, or 28 cents a share, on revenue of $31.96 billion. Analysts were looking for earnings of 9 cents a share on $27.97 billion in revenue, according to Thomson Reuters. Bank of America's provision for credit losses for the quarter totaled $9.8 billion, down from $10.1 billion in the fourth quarter.
-- Written by Robert Holmes in Boston
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