Goldman's Stock Crushed... All the Way to Last Month's Level

By now, most of you have heard that Goldman Sachs was charged with fraud. So has Goldman's stock taken a hit?

As of this writing they are down 14% on the day, all the WWWWAAAAAAYYYYY back to March 2nd levels.

So is Goldman more valuable today after being charged with fraud (given the new economic / regulatory outlook) or last month pre-charge?

And people still claim the market is efficient...

Source: Yahoo

Was the Goldman TARP Payback Below Market Value?

Back in October, the Treasury purchased $10 Billion in Warrants from Goldman Sachs as part of TARP. Yesterday, Lloyd Blankfein made the claim that in repaying that $10 Billion amount with $11.418 Billion, it works out to a 23% annualized return for U.S. taxpayers. Per Marketwatch:

"This return is reflective of the government's assistance, which benefited the financial system, our firm and our shareholders," Goldman Chief Executive Lloyd Blankfein said in a statement. "We are grateful for the government efforts."

And it does. If you ignore such "small" things like the $13.9 Billion provided to Goldman via AIG and all those FDIC guarantees. As the WSJ points out:

FDIC guarantees helped the company secure financing at a cheaper rate since Goldman was essentially using the government’s credit card. This helped boost the company’s earnings for the three quarters it used the program. And Goldman didn’t dabble. It was the sixth biggest participant in the program by volume, according to Dealogic.

Ignoring ALL of this... lets see how our (i.e. taxpayer) 14.2% NON-annualized investment performance compares to what we could have received as a normal market participant.

Yes, I understand that we, the taxpayer, got in at the preferred stock level (i.e. more senior than equities), thus the underperformance relative to the returns seen in Goldman's common equity (though not sure about 60% less).

But how is 20% less than the return on a ~10 year Goldman Sachs corporate bond "fair value"?

Source: Yahoo, Barclays

Berkshire Goldman Preferreds Yield over 17% at Initiation

Barry points out that Doug Kass thinks Berkshire's effective yield on the Goldman preferred's is ~17%. Here's the calculation to support that:

Berkshire Hathaway will receive warrants to buy $5 billion in common stock at a strike price of $115 a share, which can be used at any time in a five-year period.

Using the good old Black-Scholes model with the pre-"Buffett Bounce" $115 Stock Price, a $115 Strike, 5 Years to Expiration, and 40% Volatility (roughly the level it has been trading) we get an "option" value of $47.89 per share. Berkshire can buy $5 Billion of Goldman stock with these warrants, thus he owns 43,478,261 shares. This amounts to $2.082 Billion. Taking the $5 Billion Berkshire paid less the value of the warrants at initiation equals $2.917 Billion for the Preferreds.

Berkshire will receive $500 Million per Year, which divided by that $2.917 Billion = 17.14% Yield. If Goldman is willing to capitalize at this value, it makes me question how desperate they really are...