Goldman Sachs Group Inc. should replace its top executives because they failed to understand the politics of the financial crisis and mishandled regulators’ claims of fraud against the firm, according to Richard Bove, an analyst at Rochdale Securities.
“Goldman is going to have to pay a high price for its ineptitude,” Bove wrote in a note to investors yesterday. “Its shareholders already have.”
Goldman Sachs lost 21 percent of its value on the New York Stock Exchange in two weeks after the company was sued on April 16 by the U.S. Securities and Exchange Commission, which said the New York-based company misled investors in a mortgage-linked investment. Federal prosecutors are also investigating the matter, people familiar with the matter said last week, and Goldman Sachs executives were grilled by a U.S. Senate panel.
Senior management failed to understand that the government has chosen to make Goldman Sachs “an example of all of the evils in the financial system that caused the ‘Great Recession,’” Bove wrote. The company behaved defensively and with technical arguments, rather than proactively by redefining the debate and talking about the service that Goldman Sachs provides to the country, according to Bove.
“It should have understood the size and enormity of the forces being brought against it,” Bove wrote. “It did not. Thus, its responses were weak and ineffectual.”
$1 Billion Settlement
Bove wrote that he expects “high-level executives are going to have to be removed from their positions both in the management suite and from the board of directors.” He also expects that the firm will pay a fine of at least $1 billion to settle the SEC’s suit and will need to replace its legal team with one that has greater “Washington know-how.” Finally, he expects the firm will develop a new mission statement.
Still, Bove said he doesn’t advocate selling Goldman Sachs stock.
“Despite its political naiveté, it is still the best trading company in the world and the world needs to trade,” Bove wrote.
The shares, down 11 percent this year, rose $4.30, or 3 percent, to $149.50 at 4 p.m.