Investor Agenda

Bove: Goldman Case Weak, but Risky for System

Veteran financial analyst Dick Bove, with Rochdale Securities, sent out a research report Monday morning calling the SEC’s case against Goldman Sachs weak, but says the events of Friday could be setting the stage for another financial system collapse.

Bove also told CNBC Saturday the media had only covered one side of the story and characterized the SEC case as basically a demand story.

The Goldman product in question “was not a retail product sold to unsophisticated investors. This was a product in high demand by sophisticated investors,” he said in the research note. “The best example of this is that they bought billions of dollars in this and other like instruments.”

Bottom line, these “sophisticated” investors that brought the product knew the risks involved. 

Goldman Sachs apparently created the desired securities “to meet the demand of both sides of the markets,” Bove said.

"Institutional investors (notably pension funds) needed to purchase instruments with high risk adjusted returns," he said.

“The synthetic derivatives market was believed to be an ideal place to create such securities. By working with investment banking firms the pension funds could attempt to fashion high-yielding securities that they deemed to be safe by using proxy subprime mortgages. The demand for this type of product is believed to have run into the tens of billions of dollars,” Bove wrote. 

Bove told CNBC that Goldman Sachs wasn’t the only one that created these high-risk products, adding that Deutsche Bank and other firms had done the same.  

'Death Wish' 

Bove titled the last paragraph of the report “Death Wish.”  He warned that all the events we saw on Friday are "setting the stage for collapse (of our financial system) one more time.” 

On Friday evening, Bove said that someone at Goldman Sachs must “fall on their swords” for the devastating decline in this company’s persona and they may be forced to do so for public relations reasons.

Bove said he does not believe CEO Lloyd Blankfein or CFO David Viniar will maintain their positions at the company.

Buying Opportunity

Having said all that, Bove said he sees the weakness in the stock as a buying opportunity because Goldman’s secular outlook is “positive.”

Dick Bove will be live on CNBC’s Closing Bell for an exclusive interview at 3:15 pm New York time.  Tune in for his analysis of the latest in “The Case Against Goldman Sachs.”

Disclosure: Neither Bove nor Rochdale Securities own Goldman Sachs stock. Bove does not do business with the company.



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