Instances of what may go wrong for Goldman Sachs (NYSE:GS)
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Goldman Sachs (NYSE:GS) is doing pretty well with reducing risky asset exposure. However, instances may occur thus bringing bad news for shareholders regarding the company’s profits. Three things may occur that could bring the company down which are as follows:
The decline of M&A and IPOs
The revenue of Goldman Sachs (NYSE:GS) was up 15% as reported in its recent quarterly report. The company has strong underwriting equity with M&A activity. With the market under an all-time-high, companies may get good money for IPOs and while going after premiums, they may also agree to buyouts.
But wait, if the market cools off then Goldman Sachs (NYSE:GS) must depend on the investment banking side for its revenues. If this revenue stream were to take a hit then the company share price may be seriously affected.
Legal issues progressing
The legal settlements Goldman Sachs (NYSE:GS) had with Federal Housing Finance Agency which included the buyback of mortgage securities cost Goldman around $1.2 billion.
The cost was projected to be between $800 million so basically no shock came with the price there. However, if the legal issues of the company were to increase and build up then not much could be done about its position in the market.
There is no prediction that the company is to be hit with another law suit soon however Goldman is plagued with one issue or another at all times hence with Goldman (NYSE:GS), you never really know what comes next.
Trading Revenue taking a hit
In July, as the company reported Q2 earnings, and the trading revenue went far above expectations. It was around $2.22 billion with the expectation of being lower than $1.8 billion. Goldman (NYSE:GS) has been very dependent on trading revenue which may be risky if anything were to alter it.
The company is vulnerable with FICC revenue making up one-fourth of Goldman’s (NYSE:GS) total. With the addition of equity trading, the exposure may amount to 42% given the total. The company isn’t doing too well with federal regulations as new rules are requiring that banks hold their risky assets so that a buffer can be maintained which won’t be withdrawn whenever a crisis arises. These rules are affecting fixed income yet they are affecting trading volume as well as banks are supposed to hold capital after each and every trade. That’s why Goldman Sachs is trying to sell off to Russian oil companies; the deal however is still under approval.
The likeliness of these instances depends all upon the market. Since Goldman Sachs (NYSE:GS) has always been a victim of legal issues, litigation expenses don’t really seem that big of a deal. Last but not least, trading activity may rebound as third quarter sales are weak. It may as well adapt to new regulations. Investors must realize that everything has a risk and the riskier the stock; the more value can come out of it. Goldman Sachs (NYSE:GS) is one stock that does not come without a risk.