Goldman Sachs' stock remains a good buy in part because the government's fraud case against the Wall Street titan is shaky, analyst Dick Bove told CNBC.
The Rochdale Securities banking expert said the stock is "way oversold" and the company will report "decent" earnings Tuesday.
He took aim at the Securities and Exchange Commission allegations that Goldman deceived investors in a $1 billion mortgage securities deal that hedge fund investor James Paulson correctly bet would fail.
The SEC alleges that Goldman misled investors by not disclosing that Paulson was short-selling the securities. Goldman counters that the main investor in the deal chose the securities itselfand that Goldman lost $90 million of its own money in the transaction.
"The people who bought this product were companies that in many cases were banks—companies in Europe that had been making mortgages for over 100 years," Bove said. "These weren't retail buyers who didn't understand what they were doing."
As Bove spoke the broad market continued its afternoon rallyand Goldman shares rose following reports that the SEC was divided 3-2 over whether to bring the charges.
Bove warned that such demonizing of large financial firms could have a devastating effect on the financial system similar to the collapse in 2008.
"The net effect is every aspect of what is occurring in the financial markets is being questioned, and the overlay is it's all crooked and the people in it are all greedy and involved in fraudulent things," he said. "That will cause people to pull money away. If they pull money away we will be right back where we were in the fourth quarter of 2008."
Like a number of others, Bove questioned the timing of the charges.
Congress is struggling to get a financial reform bill through, and some analysts are saying the Goldman case could be the kickoff for an intensified push. Bove noted that consumer protection portions of the bill had wide favor in Washington but those limiting proprietary trading and private equity were being less well-received.
"I don't think there is any such thing as coincidence. The fact that there was going to be debate on this bill was critically important," he said. "Something was needed to stimulate people on the other side of the bill, on the capital markets side of the bill to get through Congress. I think the timing was political."