Goldman Sachs Silence Could Cause Heightened Uncertainty, Wells Fargo Says

Goldman Sachs Group, Inc. GS has remained silent during its recent CEO transition and is yet to address concerns related to the criminal charges filed by Malaysia. The silence triggers undesirable uncertainty, according to a Wells Fargo.

The Analyst

Wells Fargo’s Mike Mayo maintains an Outperform rating on Goldman Sachs, while reducing the price target from $305 to $235.

The Thesis

There’s been no update from Goldman Sachs since Monday morning's news of Malaysia’s 1MDB related criminal charges, with fines of more than the misappropriated sum of $2.7 billion and the $600 million in fees earned by the company. The charges could range from $300 million to as high as $5 billion, in the worst-case scenario, Mayo said in Monday's note.

Lower oil prices, fewer hedge funds clients and lower PE gains are already causing capital market woes, and the 1MDB scandal could worsen the capital market issues being faced by Goldman Sachs.

Apart from this, macro issues like Brexit and decelerating global economic growth have resulted in “overly negative group sentiment,” exerting pressure on the share price and the industry. The downturn seems disproportionately high compared to fundamentals, Mayo said.

Wells Fargo lowered its EPS estimates for Q4 2018 and 2019 from $6.69 to $3.90 and from $6.00 to $5.26, respectively.

Price Action

Shares of Goldman Sachs were trading around $170.43 at time of publication.

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Public domain photo, Goldman Sachs tower.