Goldman Sachs Group Inc. (GS), the fifth- biggest U.S. bank by assets, raised estimates of potential losses from legal claims by 13 percent and said a probe into its handling of Greek finances includes trading and research.
The forecast of “reasonably possible” legal costs rose to $2.7 billion as of March 31 from $2.4 billion three months earlier, according to a regulatory filing today. The New York- based firm didn’t give specific reasons for the increase.
Banks started releasing estimates of possible losses after the U.S. Securities and Exchange Commission told finance chiefs in October 2010 that they should disclose such costs “when there is at least a reasonable possibility” they may be incurred, even if the risk is too low to require reserves.
The estimate doesn’t include potential losses from legal matters that are at an early stage or where the firm can’t determine the potential amount, according to the filing.
An investigation of the firm’s financing and swap transactions with the Greek government, which started about two years ago, also includes “trading and research activities with respect to Greek sovereign debt,” according to today’s filing. “Goldman Sachs has cooperated with the investigations and reviews,” the company said.
Financial Crisis Probe
Goldman Sachs also disclosed the U.S. Department of Justice and SEC are investigating the firm’s role in the 2008 financial crisis. Those inquiries stem from last year’s report by the Senate’s Permanent Subcommittee on Investigations, which said the firm misled clients about mortgage-related investments before the crisis. Goldman Sachs has denied wrongdoing.
The company is in arbitration with a California school district and the cities of Houston, Texas, and Reno, Nevada, over Goldman Sachs’s role as an underwriter and broker-dealer for more than $1.7 billion in auction-rate securities from 2004 and 2007, according to the filing. In those cases, which started in February, the cities and school districts seek unspecified damages, the firm said.
Goldman Sachs is also facing a suit from the founders and majority shareholders of Dragon Systems Inc. who exchanged their stake in Dragon for stock in Lernout & Hauspie Speech Products NV in 2000, according to the filing. L&H went bankrupt on Nov. 29, 2000. The majority shareholders and Goldman Sachs asked for summary judgment on various claims last month, according to the filing.