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Bill Miller Sticks With Goldman Sachs as Damage Seen Limited

Legg Mason Inc.’s Bill Miller said he is sticking with his bets on Goldman Sachs Group Inc. because the fallout from the fraud accusations against the bank will probably be limited.

“I don’t think there’s any evidence that they would lose enough business that you would notice it,” Miller, chairman and chief investment officer of Legg Mason Capital Management, a stock-fund unit of Baltimore-based Legg Mason, said in a phone interview. “It’s much more of a political problem and a reputational problem that I believe will pass.”

Miller, who held a total of 1.5 million Goldman Sachs shares through his funds as of Dec. 31, said he hasn’t sold any since the investment bank was sued by the U.S. Securities and Exchange Commission for misleading clients on the sale of mortgage-related securities. He joins investors such as Warren Buffett in expressing confidence that the most profitable Wall Street firm will rebound from stock-market losses spurred by the lawsuit.

Goldman Sachs shares fell the most since January 2009 after the charges were made public on April 16. Executives this week endured more than 10 hours of grilling by a Senate subcommittee, centering on the ethics of selling clients products that the firm was betting against.

“Goldman did not cover themselves in glory answering the questions,” Miller said. If the SEC suit succeeds, it would have an impact on Goldman Sachs, although it’s not “going to put them out of business,” he said.

Shares Rebound

Goldman Sachs rose for a third day, gaining $2.61, or 1.7 percent, to $159.62 by 12:06 p.m. in New York Stock Exchange composite trading. The shares dropped 13 percent on April 16 and are down 5.5 percent this year.

Miller had 26 percent of his $4.6 billion Legg Mason Capital Management Value Trust fund in financial stocks as of Dec. 31, including 718,300 shares of Goldman Sachs, according to data compiled by Bloomberg. Banks overall are attractive investments based on their valuations, which on average are in the bottom 10 percent of their historical price-to-book range, Miller said.

Big banks will benefit from reduced competition following the financial crisis, Miller said. Tighter regulation of the financial industry, as contained in a bill sought by President Barack Obama, probably won’t damage the industry in the long run, he said.

“I do have concerns about short-term proposals that are punitive,” Miller said. “The broad outlines of the bill, I think the industry could live with.”

Miller’s Bet

Miller, known for beating the S&P 500 Index a record 15 straight years through 2005, trailed the U.S. market benchmark for the next three years. His Value Trust fund fell 55 percent in 2008, while his Opportunity Trust fund dropped 65 percent. Both rebounded last year after Miller’s bet on an improving economy paid off.

Miller’s $2 billion Opportunity Trust fund soared 83 percent in 2009, while his Value Trust climbed 41 percent, beating the 26 percent gain in the S&P 500. This year, the Value Trust fund has gained 6.9 percent, compared with the 7.5 percent gain by the S&P 500. The Opportunity Trust fund is up 19 percent.

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