(GS) Goldman Sachs Group Earns Favorable Ruling

Recently, The Goldman Sachs Group, Inc. (GS) won the dismissal of a lawsuit filed by Capmark Financial Group Inc. (CPMK), which alleged that the U.S. banking major influenced the company to refinance $1.5 billion in unsecured debt, leveraging on its presence in Capmark’s board as well as its role as a lender.

However, a U.S. District Judge in Manhattan dismissed the lawsuit on grounds that it was contradictory to the statements made by Capmark while filing for bankruptcy. Capmark, a real estate lender, once a unit of General Motors (GM), filed for bankruptcy in Oct 2009. Later, in 2010, in a settlement of related claims in the U.S. Bankruptcy Court in Delaware, Capmark argued that the loan refinancing was the result of an arm’s length transaction.

In 2006, Goldman obtained a 74% stake in Capmark, associated with lending $8.7 billion in credit facilities. It also had a presence in Capmark’s board. In May 2009, Capmark entered into $1.5 billion credit facility to repay a portion of the initial debt.

In the lawsuit, filed in 2011, Capmark alleged that it had paid Goldman a sum worth $147 million related to the initial loan, a deal which can be maneuvered by Goldman due to its presence on the company’s board.
We believe the lawsuit dismissal will provide relief to Goldman as it has been plagued by litigation of late. Further, it is also expected to reduce the legal expenses of the company.

Goldman is expected to announce its first quarter 2013 results on Apr 16. The Zacks Consensus Estimate for the quarter is pegged at $3.74 per share. The Zacks Earnings ESP for Goldman is +4.01% for the first quarter. This, along with its Zacks Rank #3 (Hold), places the company for an expected earnings beat.

Among other major banks, JPMorgan Chase & Co. (JPM) is also likely to deliver a positive earnings surprise this quarter as our model shows it has the right combination of elements – an Earnings ESP of +2.90% and a Zacks Rank #2.

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