Wednesday, May 11, 2011

Goldman Sachs (GS) Richard X. Bove

Time for The Andrew Mellon Story, Again 813.909.1111
rbove@rochdalesecurities.com
SYM/EXCH Current Previous Highlights
Rating Neutral Neutral
Target Price $163.00 $163.00
There have been two events in the past few hours that put Goldman Sachs at
Normalized Earnings $21.30 $21.30 greater risk. The first was the decision by the Commodity Futures Trading
Commission (CFTC) to request a fraud complaint against Goldman Sachs. The
$00.00
Stock Data (03/11) second was the conviction of Raj Rajaratnam on insider trading.
Current Price $147.88
52 Week Low/High $129.50 $175.34 “In its quarterly filing with the Securities and Exchange Commission Tuesday,
Est. 2011 Rev Per Share/P:RPS $73.85 2.00x Goldman said that the agency’s staff has orally advised it that it intends to
Est. 2011 EPS/PE $13.66 10.8x recommend the agency bring “aiding and abetting, civil fraud and
Book Value/Price:Book $118.99 1.24x supervision-related charges” against Goldman Sachs Execution & Clearing.
Tangible BV/Price:TBV $110.00 1.34x
Dividend/Yield $1.40 1.0% The CFTC, the filing said, is basing these charges on allegations Goldman
Shares Out/Mkt. Cap (mil) 583 $86,214 knew, or should have known, that its broker-dealer client’s subaccounts at
Goldman were
00.0%accounts belonging to customers of the broker-dealer and not
Income Statement (mil)/ Percent of Revenue (03/11)
Investment Banking $1,269 10.7%
the broker-dealer’s own accounts.”
Principal Transactions $2,612 22.0% The fact that Mr. Rajaratnam was convicted may embolden the CFTC to
Market Making $4,462 37.5% pursue this case more aggressively and it is possible that a trial will follow.
Commissions & Fees $1,019 8.6% This is the problem with this stock. The company has become a target for
Investment Management $1,174 9.9% any political thrust any agency wishes to pursue. It has no defenders.
Net Interest Income $1,358 11.4%
Operating Revenues $11,894 100.0% The government clearly wants something from Goldman and Goldman is not
Personnel Costs $5,233 44.0% willing to budge. I have repeatedly indicated that this battle is no good for
All Other Expenses $2,621 22.0% shareholders and this potential charge is simply more evidence of that fact.
Pretax Income $4,040 34.0% In 1932, Andrew Mellon was believed to be the richest man in the United
Balance Sheet (mil)/Percent of Assets (03/11) States and00.0%
he had just served 12 years as Treasury Secretary, a post he was
Cash $42,683 4.6% relieved of by President Hoover.
Segregated cash & securities $53,512 5.7% When President Roosevelt took command he needed to personalize his
Fed Funds & Repos $162,094 17.4%
belief that Republicans and capitalists had caused the Depression and that
Securities Borrowed $184,217 19.7%
they needed to be punished. He, therefore, decided to sue Mr. Mellon for
Receivables $87,619 9.4%
Trading assets $374,806 40.2%
tax evasion even though neither the Treasury nor the Justice Departments
Other $28,358 3.1% believed Mr. Mellon had done anything wrong.
Assets $933,289 100.0% The President continued his suit for about six years. By the end of that time
Short-Term Debt $53,746 5.8% Mr. Mellon had died and given the United States the National Gallery of Art.
Deposits $38,727 4.1% The Supreme Court found in Mr. Mellon’s favor but it did not matter. The
Trading $150,998 16.2% President had found his foil and had achieved his goal.
Repos $165,475 17.7%
Other Securities $49,136 5.3% It is becoming very clear that Goldman Sachs is the government’s foil for the
Payables $193,396 20.7% causation of the financial crisis. In my view the company has done nothing to
Other Liabilities $35,549 3.8% remove itself from this position. Until it does so or until the government
Long Term Debt $173,793 18.6% exacts its penalties, this stock is a bad purchase. It does not really matter
Preferred Stock $3,100 0.3% who is right. What matters is getting this issue behind the company.
Common Equity $69,369 7.4% Note: The tables in this report have been prepared by Rochdale Securities from sources believed
Est. Tangible Common Equity $64,131 6.9% to be accurate. However, accuracy cannot be guaranteed.
Key Ratios (03/11)
3-Year RPS CAGR (11.4%) 2010 2011 2012 2013
3-Year EPS CAGR (19.4%) Mar $5.59 $1.56 $4.49 $4.90
Tier One Common 12.8% Jun $0.78 $4.02 $4.64 $5.04
Return on Equity 15.8% Sep $2.98 $3.87 $4.39 $4.95
Return on Assets 0.29% Dec $3.79 $4.21 $4.55 $5.11
Year $13.18 $13.66 $18.07 $19.99

Previous $13.18 $13.66 $18.07 $19.99

Consensus $13.18 $14.87 $19.16 $21.41

Source: Trade Station

P/E Multiple 11.2x 10.8x 8.2x 7.4x

© 2011 Rochdale Securities LLC. All rights reserved. PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED AT THE END OF THIS REPORT.
 Wednesday, May 11, 2011

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Management Trading

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President Senior Vice President Senior Vice President Senior Vice President
djc@rochdalesecurities.com Chief Operating Officer Trading Co-Head Trading Co-Head
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Financial Analyst Merger Arbitrage and Special Situations

Richard X. Bove Barry D. Kaplan

Vice President Equity Research Merger Arbitrage and Special Situations
Financial Sector bdk@rochdalesecurities.com
rbove@rochdalesecurities.com 203.274.9121
813.909.1111

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203.274.9124 925.253.1030

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 Wednesday, May 11, 2011
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Rochdale Securities LLC ("Rochdale") is an institutional brokerage firm that does not make a market in equity securities and does not engage in
investment banking. Rochdale and its affiliates, including its principals, may own securities of the companies which are subject of this report but do not
own 1% or more of any class of common equity securities of any subject company.

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solicitation of an offer to buy or sell securities or other financial instruments.
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RR RATINGS DISTRIBUTION
RATINGS FOR STOCKS
BUY 23
HOLD 48 Buy Company has demonstrated that it is a value creating concern; the
SELL 29 return on capital (as adjusted) exceeds its cost of capital. Stock is
currently trading in a range that does not exceed its intrinsic value. Stock
ANALYST CERTIFICATION is expected to out-perform the market over the next twelve months.

I do not hold any securities of the company covered by this report.
I certify that with respect to each security or issuer that I covered in this
report; (1) all of the views expressed accurately reflect my personal views
about those securities or issuers; and (2) no part of my compensation was,
is, or will be, directly or indirectly, related to the specific recommendations
or views expressed by me in this research report.
-- Richard X. Bove
Hold/Neutral Company either is not creating value (i.e., its costs exceeds
its return on capital) or it is trading at a price equal to or in excess of its
intrinsic value. Expectation is at best stock will perform in-line with market.
If not currently held, stock should be avoided.
Sell Company's cost of capital exceeds its return on capital; and the
company has no intrinsic value or is trading at a significant premium to its
intrinsic value. Expect stock to under-perform the market over next twelve
months.

HISTORICAL RATINGS
PRICE TARGET
$250.00

$200.00

$150.00

$100.00

$50.00

$0.00
03/24/2009

04/13/2009
04/13/2009
04/14/2009

06/02/2009
06/30/2009
07/07/2009
07/14/2009
07/28/2009
08/05/2009
08/19/2009
09/26/2009
10/15/2009

11/11/2009

12/15/2009
12/21/2009
01/26/2010
02/05/2010
02/10/2010
03/02/2010
03/04/2010
03/30/2010
04/07/2010
04/16/2010
04/20/2010
04/24/2010
05/02/2010

05/19/2010
06/04/2010
06/23/2010
07/18/2010
07/20/2010
07/29/2010
08/04/2010
08/20/2010
09/04/2010
09/08/2010
09/21/2010
09/22/2010
10/19/2010

12/20/2010
01/11/2011

03/01/2010

05/11/2011
04/11/2009

05/11/2009

11/03/2009

11/16/2009
11/27/2009

05/11/2010

11/15/2010
11/16/2010

01/18/2011
01/19/2011
02/09/2011

03/16/2011
03/18/2011
03/25/2011
04/14/2011
04/19/2011

DATE

RATING N N N N B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B B N N

© 2011 Rochdale Securities LLC. All rights reserved. PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED AT THE END OF THIS REPORT.