Goldman Extends Rally on Settlement News

Goldman Sachs shares were higher Friday following the news that it settled its fraud charges with the SEC for $550 million.
Publish date:



) --

Goldman Sachs

(GS) - Get Report

shares continued to rally Friday morning after the firm settled civil fraud charges brought against it by the Securities and Exchange Commission three months ago.

Following a big surge into Thursday's close as word of the deal leaked, Goldman shares were up again Friday, despite some apprehension about its second-quarter report next week. The stock was tacking on 3.3% to $149.98 in recent trades and got as high as $152 earlier in the session, even as other big banks were down. Decliners included

Bank of America

(BAC) - Get Report



(C) - Get Report

, both of which reported earnings Friday, and

Morgan Stanley

(MS) - Get Report

which, like Goldman, reports this coming Tuesday.

The $550 million settlement, related to a complex mortgage debt offering known as Abacus, takes a big monkey off Goldman's back. Though it is the largest penalty ever paid by a Wall Street firm, it represents just about two weeks of profits, according to



Sanford Bernstein analyst Brad Hintz called the deal a "win-win settlement for Goldman Sachs and the SEC." He states that this resolution gives the SEC a "clean win," despite what he believes was "a weak legal case." However, Goldman also benefits because the settlement allows the firm to tell its clients it did not intentionally commit fraud, but merely made the mistake of failing to make sufficient disclosures in its marketing materials.

FBR Capital Markets maintained its "outperform" rating on Goldman on Friday morning, even as it made a significant cut to its second-quarter earnings estimate, going to $1.36 a share from a prior view of $2.75. Citing the weak performance of

JPMorgan Chase's

(JPM) - Get Report

fixing income trading business -- a critical area for Goldman as well -- analyst Steve Stelmach said he now expects Goldman's revenue from its FICC business to come in at $4.6 billion, compared to a prior view of $5.9 billion. In the first quarter, Goldman's FICC revenue totaled $7.4 billion.

But in a report titled "Back to Business," Ticonderoga Securities analyst Doug Sipkin reiterated his "Buy" rating and $209 price target on Goldman's stock. Sipkin argues the firm is likely to begin buying back its stock. Goldman bought 13 million shares at $172.12 per share in the first quarter.

Goldman's stock was trading comfortably above $180 before news of the SEC's charges broke in mid-April, and until today, it hadn't peaked above $150 since April 30.

The latest average estimate of analysts polled by

Thomson Reuters

is for Goldman to report a profit of $2.07 a share in the June period on revenue of $9.02 billion.

More on Goldman Sachs Volcker Rule's Impact on Goldman


Written by Dan Freed in New York


Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.