By Lauren Tara LaCapra
NEW YORK (Reuters) - Goldman Sachs Group received a subpoena from New York prosecutors seeking information on the investment bank's role leading into the global financial crisis, a person familiar with the matter said on Thursday.
The subpoena from Manhattan District Attorney Cyrus Vance is the latest blow for the largest U.S. investment bank, which is reinventing itself as new U.S. financial regulations cut into some of its key businesses.
Goldman's shares fell as much as 3.4 percent as news of the subpoena emerged, but then took back much of their losses, trading down 1.7 percent to $133.90 in the early afternoon.
In addition to the New York subpoena, the Department of Justice is likely to subpoena the bank, The Wall Street Journal reported recently. A subpoena is a request for information, and does not represent a charge or guarantee of a charge.
In both cases, prosecutors are seeking to learn more about documents unearthed by a U.S. Senate subcommittee report about Wall Street's role in the housing market collapse. The Manhattan D.A. is not seeking new documents, the source said.
The subcommittee report said that Goldman offloaded much of its subprime mortgage exposure to unsuspecting clients in late 2006 and 2007 as the market was starting to fall sharply. In some cases, the bank dragged its heels when clients wanted to close out their losing positions, according to the report.
The U.S. government is broadly investigating banks' actions in the years leading up to the financial crisis to determine whether executives' misdeeds made the meltdown worse.
One of the first big cases as part of the government's broad investigations was the Securities and Exchange Commission's civil fraud suit against Goldman last year over the bank's failure to disclose information linked to a complex mortgage security.
Goldman settled those charges in July without admitting or denying charges, but it did express regret for failing to disclose information.
BLOOD IN THE WATER
Experts disagree over the seriousness of the recent Goldman subpoenas. Dick Bove, an analyst at Rochdale Securities, said that the U.S. government is looking for a bank to punish for the financial crisis, and has selected Goldman Sachs.
"They want Goldman Sachs to show some sort of contrition," Bove told Reuters on Thursday. "The blood is in the water, and the sharks will all come."
Even if there is a low likelihood of successful civil or criminal action against Goldman Sachs, continued pressure from politicians and the public could still hurt the firm, Brad Hintz wrote in a note on Wednesday.
"We believe that Goldman's clients will begin to rethink their relationship with the firm and the franchise will ultimately suffer," Hintz wrote, adding that the bank would be wise to make amends with the public soon.
But other veteran analysts have recently said concerns about Goldman facing investigations are overblown, and that little will likely come of any inquiries.
JPMorgan analyst Kian Abouhossein lifted his rating on the bank to "overweight" from "neutral" earlier this week and said that any possibly negative news developments are already reflected in the bank's share price.
All of Wall Street is facing a changing regulatory environment, but Goldman Sachs could be particularly hurt by some of the changes afoot. Under a provision of last year's Dodd-Frank law, banks face restrictions on how much of their capital they can bet on trades or private equity deals. Goldman relied heavily on betting on markets to bolster its bottom line.
Dodd-Frank is also expected to move most derivatives trading to clearinghouses and exchanges, which is likely to cut in to Goldman's profits from trading over-the-counter derivatives.
The Manhattan district attorney's office was not immediately available to comment.
Goldman said in a statement: "We don't comment on specific regulatory or legal issues, but subpoenas are a normal part of the information request process and, of course, when we receive them we cooperate fully."
News of the subpoena was first broken by news agency Bloomberg.
(Reporting by Lauren Tara LaCapra, additional reporting by David Gaffen; Editing by Dan Wilchins, John Wallace and Matthew Lewis)
