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Goldman, Beaten But Unbowed


It's a public punching bag but still a smart investment bet.

More than most, the PR department at Goldman Sachs (GS) must be looking forward to the weekend: It just spent the last few days getting pummeled like Apollo Creed.

Today, the hits kept right on coming. The Wall Street Journal reports this morning that shareholders in Goldman have asked the bank to slice the size of its bonus pool, arguing that the firm should pass along more of its earnings to investors.

"The investors hold tens of millions of shares in Goldman Sachs, which is on track to make the biggest employee payout in the firm's 140-year history," the Wall Street Journal notes. "Their complaints in private conversations with the company and at analyst meetings show how anger over its big-money culture is spilling into the ranks of investors who typically shy away from debates over Wall Street pay."

Goldman's spokesman Lucas van Praag said in response that shareholders "have historically been more focused on the absolute return on equity and one book value per share growth" than per-share earnings.

The article isn't too specific about what, exactly, these unnamed shareholders are after or even that their claims seem justified. Year-to-date, the stock of Goldie is up 103%. And these shareholders are whining to the press?

Still, the news follows a string of tough headlines for Goldie, much of which was self-inflicted. It was just a few days ago that CEO Lloyd Blankfein told us he was doing "God's work." We're no professors of religion, but helping companies raise money by selling securities is not, we don't think, what the Bible is implying.

Blankfein then doubled down on that bit of stupidity, when he begged for public absolution on Tuesday. The chrome-domed CEO said he his firm "participated in things that were clearly wrong" in the lead-up to the financial crisis.

Blankfein, who has raked in more than $136 million in total compensation over the past five years, according to Forbes, said: "We participated in things that were clearly wrong and have reason to regret. We apologize."

Goldman this week also pledged $500 million over five years to help 10,000 small businesses recover from this downturn. The firm, bless its heart, even trotted out a model-like managing director to CNBC to pitch the cause. (Goldman, for its part, said the program had nothing to do with rehabilitating its public image).

However, detractors didn't find the crumbs Goldie threw at us all too convincing, and for fair reason.

As the Financial Times notes, "The yearly amount of about $100 million to be spent on the initiative -- which will be overseen by a panel co-chaired by Warren Buffett, a Goldman investor -- is equivalent to a good trading day at Goldman. In the third quarter, the bank had 36 days in which traders made more than $100 million."

The reasons for all the public outrage directed at Goldman are well-known and easy to understand. As our own Michael Comeau noted in his article today: "Who better to hate than an investment bank that pays its employees more than $700,000 a year on average despite playing a major role in building the bubble and requiring government assistance to survive?"

Still, despite all this off-with-their-heads chatter, the fact is that Goldman, it could be argued, remains a smart bet for investors.

Matthew Albrecht of Standard & Poor's, a fan of the firm, points to its global footprint, strong client relationships, peer-best return on equity (a key measure of profitability), and solid balance sheet.

"We think its balance sheet strength compared to peers gives it a head start on gaining market share in a recovery, and we view the shares as attractive," Albrecht recently wrote in a research note.

The analyst rates Goldman a Buy with a price target of $216.

We would add another reason it makes sense to own Goldman: The company rules the universe.

The i-bankers there have lots of money and more friends in high places than you do. The fact is, they have amassed a war chest of cash that they don't mind spreading around Capitol Hill to curry favor with all the right people. tracks the top 100 all-time political donors from 1989-2010. Number four on that list is Goldman Sachs.

In case you're curious, number one is AT&T (T), followed by Citigroup (C), Altria (MO), UPS (UPS), Microsoft (MSFT), Time Warner (TWX), JP Morgan (JPM), Morgan Stanley (MS), Lockheed Martin (LMT), Verizon (VZ), FedEx (FDX), GE (GE), and Bank of America (BAC).

Don't think influence matters much? Then ask yourself what ever happened to all those stories about high-frequency trading? And the A1 Wall Street Journal articles on trading "huddles"? Nada mucho, as far as we can tell.

If you can't beat 'em...

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No positions in stocks mentioned.
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