Goldman Lowers Possible Legal Cost Estimate to $5.3 Billion

  • Figure drops 10 percent as bank adds to legal reserves
  • Regulators are investigating `when-issued trading,' firm says

Goldman Sachs Group Inc. decreased its estimate for reasonably possible legal costs in excess of reserves by 10 percent to $5.3 billion, while adding to the list of trading activities regulators are investigating.

The third-quarter figure dropped from $5.9 billion three months earlier as the New York-based firm added $416 million to its legal reserves in the period, according to a Securities and Exchange Commission filing Tuesday. The estimate, which banks have been providing since SEC guidance on the matter in 2010, gives investors an idea of potential legal losses beyond reserves.

Goldman Sachs said the offering and auction of securities, as well as “when-issued trading,” were being probed. The company was among 22 financial companies accused of colluding to manipulate auctions of U.S. Treasuries in a July lawsuit filed by investors.

Goldman Sachs has added $2.1 billion to its legal reserves this year, almost as much as it set aside in the past three years combined. The costs dragged down the bank’s return on equity to 8.8 percent in the first nine months of this year, from 11 percent in the same period of 2014.

Goldman Sachs has held talks with the U.S. Justice Department over a $2 billion to $3 billion settlement of a probe into its sales of mortgage bonds leading up to the financial crisis, a person with direct knowledge of the situation said in June. In the second quarter, the firm added costs that could arise from that probe to the possible losses estimate, contributing to a 55 percent jump from $3.8 billion at the end of March.

In August, Goldman Sachs agreed to pay $272 million to settle a lawsuit from investors in residential mortgage-backed securities and was one of five banks that agreed to settle U.S. investor suits over allegations of rigging the foreign-exchange market. The firm will also pay about $164 million in an accord to resolve accusations that a dozen big banks conspired to limit competition in the credit-default swaps market, according to people briefed on terms of the deal.

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