The Goldman Sachs Group, Inc.
) recently failed in its attempt to dismiss a lawsuit filed by
Prudential Financial Inc.
) relating to misrepresentations in selling residential
mortgage-backed securities. The lawsuit claimed damages of $375
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U.S. District Judge in Newark, N.J. claimed that Goldman
distorted its underwriting standards and practices regarding the
sale of around $375 million of residential mortgage-backed
securities. However, the judge declared that the U.S. banking
major will have additional opportunities to seek dismissal of the
Prudential and its affiliates had bought securities in 16
transactions from Goldman between Feb 2004 and Dec 2008, which
they alleged were misrepresented. However, Goldman disputed that
Prudential did not sufficiently support its case for fraud and
relied on assumptions.
Many other U.S. banking majors like
Bank of America Corporation
) and Goldman have been plagued by lawsuits over fraud during the
sale of risky mortgage-linked securities, whose brisk decline in
value was a primary factor to the financial crisis of 2008.
We believe that such lawsuits will dent banks' reputation and
legal expenses will remain an overhang on its financials.
However, investors who have lost their hard-earned money in such
investments should feel relieved.
Goldman is expected to announce its first quarter 2013 results on
Apr 16. The Zacks Consensus Estimate for the quarter is pegged at
$3.74 per share. The Zacks Earnings ESP for Goldman is +4.80% for
the first quarter. This along with its Zacks Rank #3 (Hold)
places the company for an expected earnings beat.
Among other major banks,
JPMorgan Chase & Co.
) is also likely to deliver a positive earnings surprise this
quarter as our model shows it has the right combination of
elements - an Earnings ESP of +2.92% and a Zacks Rank #2 (Buy).