Goldman Sach’s investment in China didn’t pay off in 2011, and its shares fell along with other bank stocks on anxiety over a potential Greek default.
Shares of Goldman Sachs Group (GS) are off $3.82, or 3.2%, to $114.81 in morning trading. Shares of Bank of America (BAC) also were off about 3%, or 24 cents, to $7.74. Morgan Stanley (MS) shares fell 4.3%, or 79 cents, to $17.50, while UBS (UBS) stock is off 3.8%, or 53 cents, to $13.30.
Goldman reported a net loss of $103 million in Asia for 2011 compared to a $2.1 billion profit in 2010.Â Revenue fell $46% year over year to $3.86 billion. Goldman took a $517 million loss from its investment in the Industrial & Commercial Bank of China for the year, due to market and lending losses in the face of slowed growth in China. The result was Goldman’s first loss in Asia since 2008.
Goldman has been selling shares of the big Chinese bank; it now owns 4.7 billion shares, down from 7.6 billion in 2010, according to Keefe, Bruyette & Woods research. The Wall Street Journal‘s Isabella Steger has a nice piece on Goldman’s results for 2011.
The Securities and Exchange Commission is scrutinizing $1.3 billion in subprime residential mortgage-backed securities underwritten by Goldman in 2006. Regulatory action and lawsuits are possible, though Goldman is “well reserved for potential litigation and should not be materially impacted by the investigation,” write KBW analysts David Konrad, Andrew Del Medico and Brian Finneran.
In fact, return on equity could turn around. Looking ahead, first quarter results could be improving on the strength of the fixed income, commodities and currency business, despite slowness in merger and acquisition activity. Goldman and Barclay’s Capital have the biggest share of over-the-counter commodities trading, according to a survey cited by Bloomberg.
KBW has a $140 price target on Goldman shares, implying upside of 22%.