Goldman Sachs Begins New Trend in Litigation Liability Disclosure

Goldman Sachs (NYSE:GS) filed its quarterly financial report (10-Q) with the SEC on Wednesday, and the investment bank has clearly bumped up transparency in disclosures to a new level. ^[1] While details about individual lawsuits, which have the potential to significantly impact a company’s results and/or performance, are released by all companies when they are filed, Goldman’s effort in compiling the data leaves no room for doubt about the legal hurdles the bank faces. Goldman, which reported only its second ever quarterly loss in Q3 2011, also went to the extent of declaring in the filing that there is a possibility of lawsuits from 3 financial firms in the near future – a move that should go a long way to help build investor confidence in the bank. So are the guys at Bank of America (NYSE:BAC) and Citigroup (NYSE:C) listening?

See our full analysis for Goldman Sachs

The size of mortgage-related lawsuits against Goldman stands out in the SEC filing, which mentions that mortgage-backed securities worth nearly $15.8 billion sold by the investment bank prior to 2008 are under legal scrutiny. While a bulk of this figure – $11.1 billion to be exact – is due to the lawsuit filed by FHFA, other major lawsuits include those by the Charles Schwab Corporation (NYSE:SCHW), the National Credit Union Administration, Allstate and The Union Central Life Insurance Company.

Notably, Goldman’s best estimate for the possible liability from these lawsuits is $2.6 billion. We account for Goldman’s litigation expenses as a part of its “Other Unallocated Costs” in our analysis of the company.

In light of the near-term outlook for the global economy and the string of lawsuits concerning the bank, we are reviewing our $137 price estimate for Goldman’s stock – which is about 30% above the current market price.

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1. Goldman Sachs 3Q 2011 10-Q Filing, SEC Website [↩]