Goldman scales back estimate of legal costs

(Reuters) - Goldman Sachs Group Inc GS.N has scaled back its estimate of the legal costs it may face, beyond what it has set aside, by more than half to $2 billion.

A Goldman Sachs sign is seen over the company's trading stall on the floor at the New York Stock Exchange, March 21, 2013. REUTERS/Brendan McDermid/Files

The bank had estimated in November legal expenses of up to $5.3 billion in excess of what it had set aside.

The Wall Street bank, which ranked No. 1 in advising on both announced and completed mergers and acquisitions globally in 2015, is involved in a number of judicial, regulatory and arbitration proceedings.

“The uncertain regulatory enforcement environment makes it difficult to estimate probable losses, which can lead to substantial disparities between legal reserves and subsequent actual settlements or penalties,” the bank said in a regulatory filing.

For the fourth quarter, the bank reported a 64 percent jump in non-compensation costs due mainly to $1.95 billion that was set aside for litigation and regulatory issues.

Goldman is among several financial firms targeted by a federal-state working group investigating misconduct in the sale of mortgage-backed securities prior to the financial crisis.

The U.S. Department of Justice and state officials have already extracted multi-billion dollar settlements from a number of large U.S. banks, including JP Morgan Chase & Co JPM.N, Bank of America Corp BAC.N and Citigroup Inc C.N, over the sale of mortgage-backed securities.

Goldman agreed in early January to pay over $5 billion to settle claims it misled mortgage bond investors during the financial crisis.

The settlement underscored how Wall Street is yet to shake off the legacy of the U.S. subprime crisis, when mortgages were sold to people who could not afford them and then repackaged for investors without adequate explanation of how risky they were.

Goldman also said it was facing an investigation relating to its compensation practices, which it hadn’t disclosed in previous filings.

Shares of the bank were up 1.7 percent at $149.48 in early trading. As of Friday’s close, the stock had lost more than 18 percent of its value since the beginning of the year.

Reporting by Sweta Singh in Bengaluru; additional reporting by Olivia Oran in New York; Editing by Anil D’Silva and Bernadette Baum