Goldman Sachs's Stock Tumbles and Get Its First Sell Rating

Goldman Sachs CEO Lloyd Blankfein
Goldman Sachs CEO Lloyd Blankfein

The fallout from the April 27 Senate panel grilling of top Goldman Sachs executives, including CEO Lloyd Blankfein, is starting to jell: Standard & Poor's advised its clients on Friday morning to dump the stock of the high-profile investment bank. It's the first sign that Wall Street is starting to take note that the roof could fall in at Goldman (GS).

Prior to the new S&P stance, it had a hold rating on the stock. In my column on April 28, I noted that none of the 31 analysts who follow the No. 1 investment bank had a sell recommendation on it. S&P's move might just be the start of a rethinking on the Street about Goldman.

S&P analyst Matthew Albrecht notes that he expected the stock to open lower today (it did) after The Wall Street Journal published an unconfirmed report suggesting that federal prosecutors are investigating whether the firm or its employees committed securities fraud in its mortgage trading business. The New York Times also had a similar story suggesting that the prosecutors may also be looking at criminal aspects in the case. In midday trading, the stock is down nearly 9%, to $146.10.

In Line Again With Its Peers

Though such cases are traditionally difficult to prove, says Albrecht, "we think the risk of a formal securities fraud charge, on top of the Securities and Exchange fraud charge and pending legislation to reshape the financial industry, further muddies Goldman's outlook."

So, Albrecht scaled back his 12-month stock price target on Goldman by $40 a share, to $140, or 1.2 times its book value. That's similar to the current valuation of its peers.

When I wrote my April 28 column -- the day after the Senate inquiry about the fraud charges -- the stock was at $153 a share. Which way will it go from here?