Goldman Sachs

[Viking]

Goldman Sachs currently looks to me to be a solid buy today. Shares are trading at $136 (down $53 = 29% from recent high). Should earn +$20 in 2010; PE = 6.8; Div = $1.40 or 1%. Notwithstanding the current noise from the justice department, the company is in much, much better shape than when Buffett made his investment 0n Sept 23, 2008 (when the stock was trading at $125.05). Its profitability has rebounded. Its competitive position is better as a few of its competitors are gone. Its capitalization is also much better. And Buffet, who did not hesitate to throw Kraft under the buss (in the press and by selling shares) and has extensive experience with the Solomon fiasco has actually come out in support of GS. Oh, and S&P has a sell recommendation on GS. And I also expect that most of the 'smart money' are busy selling shares so GS does not show up on any list of equity holdings (that they then have to justify).

 

What am I missing?

 

Sept 24, 2008: “Goldman Sachs is an exceptional institution,” he explained yesterday. “It has an unrivalled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.”

 

May 2010 OMAHA, Nebraska (BH Annual Meeting) — Berkshire Hathaway CEO Warren Buffett said Saturday he has no plans to sell his company’s stake in Goldman Sachs Group Inc. as the investment bank fights civil fraud charges. Buffett and Berkshire’s vice chairman Charlie Munger both praised Goldman Saturday as Berkshire held its annual meeting. Both executives said they’re happy with Goldman CEO Lloyd Blankfein’s leadership. And they don’t view the Securities and Exchange Commission’s charges against Goldman as a reflection against Blankfein. Buffett has been one of Goldman’s biggest supporters before and after the SEC filed its civil lawsuit against the bank on April 16. It charged the investment bank with misleading investors about a deal involving complex mortgage-related investments that later plunged in value. During an expected five hours of questions from shareholders, Munger noted that the SEC vote to file the charges was 3 to 2. He said that if he had been a member of the SEC, he would have voted against the suit. On Friday, Goldman stock plunged 9 percent on reports that the Justice Department had opened a criminal investigation of Goldman. Buffett told shareholders that Berkshire’s $5 billion of preferred stock in Goldman is a good investment because it generates 10 percent interest a year. He said the investment includes warrants that can convert the preferred shares into regular stock at $115 a share, a discount from Goldman’s current price of $145.20.

 

[watsa_is_a_randian_hero]

Ive been a buyer of the preferred D shares.  Traded for 70% of face recently.  They are floaters, and therefore protect against inflation.  Great buy, for the risk level.

[beerbaron]

Ive been a buyer of the preferred D shares.  Traded for 70% of face recently.  They are floaters, and therefore protect against inflation.  Great buy, for the risk level.

 

Nice catch, on today's price it's about 5.8% it's quite a nice yield for a floating.

 

On the common I would buy GS if I could understand it... I think I just can't. This is goes into the too hard pile.

 

On the preferred tough... I can certainly understand that GS is good for the money.

 

BeerBaron

[EricSchleien]

Where's this security listed?

[biaggio]

what's the ticker symbol for class D floater?

[biaggio]

http://www2.goldmansachs.com/our-firm/investors/creditor-information/preferred-stock.html

 

for those intersted

[watsa_is_a_randian_hero]

Ive been a buyer of the preferred D shares.  Traded for 70% of face recently.  They are floaters, and therefore protect against inflation.  Great buy, for the risk level.

 

Nice catch, on today's price it's about 5.8% it's quite a nice yield for a floating.

 

On the common I would buy GS if I could understand it... I think I just can't. This is goes into the too hard pile.

 

On the preferred tough... I can certainly understand that GS is good for the money.

 

BeerBaron

 

Best part is...when you buy a floater below par you get optionality...for instance, if you buy at 70% of face, and libor goes up 1% because inflation goes up 1%, then your coupon will also increase 1% on face.  HOWEVER, an increase of 1% on face equates to an increase of roughly 1.4% on your purchase price. 

 

So, if you see a spike in inflation and libor jumps, your coupon (as a % of purchase price) will increase FASTER than inflation.

 

All of that, AND a LIBOR floor of 4% (so if LIBOR is below 4%, then 4% LIBOR is used to calculate the coupon).

 

Hows that for an investment!!!

[valuecfa]

Ive been a buyer of the preferred D shares.  Traded for 70% of face recently.  They are floaters, and therefore protect against inflation.  Great buy, for the risk level.

 

Nice catch, on today's price it's about 5.8% it's quite a nice yield for a floating.

 

On the common I would buy GS if I could understand it... I think I just can't. This is goes into the too hard pile.

 

On the preferred tough... I can certainly understand that GS is good for the money.

 

BeerBaron

 

Best part is...when you buy a floater below par you get optionality...for instance, if you buy at 70% of face, and libor goes up 1% because inflation goes up 1%, then your coupon will also increase 1% on face.  HOWEVER, an increase of 1% on face equates to an increase of roughly 1.4% on your purchase price.  

 

So, if you see a spike in inflation and libor jumps, your coupon (as a % of purchase price) will increase FASTER than inflation.

 

All of that, AND a LIBOR floor of 4% (so if LIBOR is below 4%, then 4% LIBOR is used to calculate the coupon).

 

Hows that for an investment!!!

 

 

It's not a bad investment at all. However, Libor would have to go up quite a bit to break the floor. Could be at 4%, based on face, for some time. That being said, hat tip for the idea. I may park some cash there.

 

(so if LIBOR is below 4%, then 4% LIBOR is used to calculate the coupon)

 

I'm sure u are already aware, but for the sake of other lurkers out there, it is .67% above libor. So a 3.5% libor would give you a little greater than 4% on the face.

[Guest ValueCarl]

Is it possible that a chain reaction is being set off whereby the negative perception which permeates their name is causing a feeding frenzy, one where businesses, consumers as well as competitors alike begin boycotting this company whenever they can?

 

How many high net worth customers did they blow up with tentacles across the globe?

 

Initially, at least, I had thought Mr. Buffett was supporting his Gen Re executives before they were incarcerated for fraud. I would think he had much more intimate knowledge of what his executives were concocting under his own roof versus those other men, "doing the work of God," at Goldman.

 

I've also had personal experience with him blessing management teams with high praise in the past and then flipping out of his position for a fast double just one year later.  

 

Considering Goldman's political plants in governments across the globe with careful attention to former Treasury Secretary Paulson and former NY Fed Governor Geithner in the U.S.A., I hope I am not left wondering how treason and sedition does not come about this fiasco, one which Paulson chose to fix with taxpayer dollars by showing absolute allegiance to Goldman versus him doing something more noteworthy as a governmental fiduciary on behalf of the Americans he was supposed to be responsible for.  >:(            

[watsa_is_a_randian_hero]

Ive been a buyer of the preferred D shares.  Traded for 70% of face recently.  They are floaters, and therefore protect against inflation.  Great buy, for the risk level.

 

Nice catch, on today's price it's about 5.8% it's quite a nice yield for a floating.

 

On the common I would buy GS if I could understand it... I think I just can't. This is goes into the too hard pile.

 

On the preferred tough... I can certainly understand that GS is good for the money.

 

BeerBaron

 

Best part is...when you buy a floater below par you get optionality...for instance, if you buy at 70% of face, and libor goes up 1% because inflation goes up 1%, then your coupon will also increase 1% on face.  HOWEVER, an increase of 1% on face equates to an increase of roughly 1.4% on your purchase price.  

 

So, if you see a spike in inflation and libor jumps, your coupon (as a % of purchase price) will increase FASTER than inflation.

 

All of that, AND a LIBOR floor of 4% (so if LIBOR is below 4%, then 4% LIBOR is used to calculate the coupon).

 

Hows that for an investment!!!

 

 

It's not a bad investment at all. However, Libor would have to go up quite a bit to break the floor. Could be at 4%, based on face, for some time. That being said, hat tip for the idea. I may park some cash there.

 

(so if LIBOR is below 4%, then 4% LIBOR is used to calculate the coupon)

 

I'm sure u are already aware, but for the sake of other lurkers out there, it is .67% above libor. So a 3.5% libor would give you a little greater than 4% on the face.

 

Yeah, its not a huge premium on LIBOR, and it does have a bit to go before the floor is taken out.  However, considering this was trading at 23 pre-greece, pre-GS SEC investigation, I think it is a good buy below 20.  Chances are it trades above 20 again within next 12 months, which puts the 1 year return expectation at 20%+ including coupons.

[Grenville]

Watsa,

 

Nice idea! Thanks for sharing.

[rtgross]

Closing price information from IB for those looking.

 

GOLDMAN SACHS GROUP INC DEP SH REPS

Stock Type: Public Stock GS PRA NYSE 16.26 USD

 

GOLMAN SACHS GP - 6.20% DEP SHS SERIES B

Stock Type: Public Stock GS PRB NYSE 23.20 USD

 

GOLMAN SACHS GP - DEP SHS SERIES C

Stock Type: Public Stock GS PRC NYSE 18.58 USD

 

GOLMAN SACHS GP -DEP SHR FLOAT RATE NON-CUM SER D

Stock Type: Public Stock GS PRD NYSE 16.72 USD

 

[SharperDingaan]

 

Keep in mind that GS common is only attractive - if its future actually looks something like its past. The current financial reforms are changing the playing field, & most folks would expect multiple rounds of reform versus just one round. We know there are clear conflicts within this firm, those conflicts are representative of the street, and regulators need an example.

 

We know that GS made a trading profit on every day of Q1, at the same time that many of the trading calls they gave their clients went south. Most would suggest the either the GS 'house' calls were better than they were giving their clients (so what were their clients paying for), or GS was betting against their clients (by breaking client confidentiality, &/or insider trading against their clients positions). We know that the extraordinary accomplishment also occurred while GS was undergoing an SEC originated criminal probe of broadly similar circumstances, & that GS has chosen a negotiated settlement with penalties alleged to be $1B+. If GS is broken up, as part of an industry restructuring, prior metrics are pretty meaningless. 

 

The good news is that it threatens the PAR repayment certainty of the prefs; driving up yield & magnifying the volatility. The offset is market rate resets that put a floor value under the pref.

 

SD