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SocGen Initiaties Coverage On Goldman With "Sell" Rating, $138 Price Target

Tyler Durden's picture


Moments ago shots were fired when a (French) bank broke the unspoken Omerta code among sellside bankers: it downgraded another bank in a time when the S&P is just shy its all time highs (downgrading banks when the market is tumbling is usually a-ok). The note came from SocGen's Andrew Lim, whse thesis is rather simple: "Valuation too expensive in light of regulatory and revenue challenges."

From the note:

Initiation of coverage We initiate coverage of Goldman Sachs with a Sell rating and target price of $138. This is part of our Global Investment Banks initiation.


Key investment themes GS is a top-tier bank in primary and secondary capital markets business. However, with expectations of rising US 10-year yields, we fear the  prospect of a credit bear market will pressure FICC trading revenues.


We see GS as already strong on B3 leverage (and B3 common equity). However, in endeavouring to maximise ROE by maximising share buybacks, we feel that management’s capital return policy is too aggressive and needs to be scaled back. Dividends and buybacks combined should account for just over 100% of earnings in 2013.


We see a risk of GS continuing to be impacted more than peers by regulations. The Volcker rule, while manageable for the bank, should nonetheless put pressure on revenues as it forces GS to scale back investments in covered funds. Meanwhile, we see the risk of market RWA inflation from the BCBS’s review of the trading book.


How we value the stock We use an SPFV approach to obtain a target price for GS of €138. We include on top of this the expected 12m forward DPS of $2.20, which results in a total shareholder return of -21%. Our full SPFV model is available on page 68 of our global investment banks initiation report. Looking at the valuation from another perspective, an ROE of only c.10% does not support a P/BV rating of over 1.0x in our view.


Risks to our target price and rating Pressure on the credit market may prove temporary rather than structural and longer term in nature as we model. On top of this, GS may be able to take much more market share from competitors than we estimate. GS may be able to reduce leverage and RWA considerably without hurting revenues. Management may be able to mitigate the impact of the Volcker rule with much less detriment to group ROE than we expect.

Sorry Andrew, no Goldman "elves" Christmas party invitation for you this year.

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Tue, 01/07/2014 - 12:54 | 4308339 hedgeless_horseman
hedgeless_horseman's picture



Please, sell us your GS before they take it private at a huge premium.

Tue, 01/07/2014 - 12:56 | 4308356 Cult_of_Reason
Cult_of_Reason's picture

GS going private?!? Nah...

Tue, 01/07/2014 - 13:01 | 4308363 hedgeless_horseman
hedgeless_horseman's picture



Giant Squids thrive in the dark.

Publicly traded companies are subjected to too much light, especially in regards to compensation.

Tue, 01/07/2014 - 13:03 | 4308391 Cult_of_Reason
Cult_of_Reason's picture

This rumor (GS going private) has been floating since 2008.

Why would GS go private when the market is at an all time high and right before the Fed driven bubble is about to burst?!?

Tue, 01/07/2014 - 13:11 | 4308428 disabledvet
disabledvet's picture

I still find it amazing anyone even wants to associate with the name...that would be my downgrade. change it to "smith and jones" and they'd probably get 20 bucks on the upside. in any case "dirst of many."

Tue, 01/07/2014 - 14:34 | 4308703 asteroids
asteroids's picture

GS is a DOW  30 stock, I wonder what fuckery will be employed to keep the DOW index heading higher.

Tue, 01/07/2014 - 13:03 | 4308393 NotApplicable
NotApplicable's picture

I find it unusual that anyone would believe that the Volker Rule would ever apply to GS.

Do they really not understand how the world works?

Tue, 01/07/2014 - 13:13 | 4308437 disabledvet
disabledvet's picture

that's why they were converted into a Bank. "only Banks are allowed to threaten other Banks." Happy Trading!

Tue, 01/07/2014 - 12:58 | 4308369 PR Guy
PR Guy's picture



Investment banking is covered quite nicely in this spoof on a TED talk about capitalism and profit)


Tue, 01/07/2014 - 13:02 | 4308387 NotApplicable
NotApplicable's picture

For a PR Guy, you're pretty damn clueless when it comes to wearing out your welcome.

Quit spammin' every damn thread, or I'm gonna tell Tyler!

Tue, 01/07/2014 - 12:56 | 4308340 Cult_of_Reason
Cult_of_Reason's picture

You cannot downgrade Goldman. They are doing God's work.

Tue, 01/07/2014 - 12:55 | 4308348 PR Guy
PR Guy's picture

Inestment banking is covered quite nicely in this spoof on a TED talk about capitalism and profit (though the UK bit before it is the best)


Tue, 01/07/2014 - 13:36 | 4308522 TeamDepends
TeamDepends's picture

En garde Goldman, you putrid smutty-face!

Tue, 01/07/2014 - 13:49 | 4308559 Bunga Bunga
Bunga Bunga's picture

Don't worry, Draghi will fix it.

Tue, 01/07/2014 - 14:03 | 4308598 Laughing Stock
Laughing Stock's picture



"SocGen Initiaties Coverage On Goldman With "Sell" Rating, $138 Price Target"

"How we value the stock We use an SPFV approach to obtain a target price for GS of €138. "


So dipshits, is the reco USD or Euro?

Tue, 01/07/2014 - 17:00 | 4309265 Rodders75
Rodders75's picture

Perhaps GS will get their own back by focusing on the fucked up balance sheets of Soc Gen & all the other French banks.

Better still: come out with a hugely positive recommendation, pump them up, get short then dump on them from a great height.

Big bucks bitchez!

Thu, 01/09/2014 - 03:17 | 4314579 Izznogood
Izznogood's picture

Just as temperatures cannot be hot or cold, they can be high or low, while the weather is hot or cold, so valuations cannot be expensive or cheap, they can be high or low, while the securities are expensive or cheap. Sorry Andrew, you didn't get your money's worth at Croydon College ...

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