When it comes to making money, one of the long-time leaders has been The Goldman Sachs Group, Inc. (NYSE/GS). Many people been having critical of Goldman Sachs due to its influence in nations around the world, which can lead to favorable terms for the company. Regardless of one’s opinion about the firm, its actions can be a good indicator of underlying trends.
Goldman Sachs is currently turning down the role of lead stock underwriter for firms located in the southern eurozone nations. If this firm that has been so successful at making money is so worried about the eurozone that it’s avoiding certain areas completely, then this is quite a negative sign. I would highly suggest following its lead and avoiding companies with exposure to the weaker eurozone nations.
There is much talk in the newspapers about a new deal for Greece, and attempts to keep the eurozone together. If the eurozone really was this close to a deal and this far away from a financial crisis, I’d think that Goldman Sachs would be jumping at the chance to be part of any underwriting deals. But because it would be liable to losses if the eurozone financial crisis were to worsen, and since it has far more access to information than you or me, its decision to avoid the region altogether is one in which I see a large amount of legitimacy and credence.
Goldman Sachs has rejected being underwriter in a $3.2-billion rights offering by Banco Popular Espanol SA (MCE/POP) due to concerns of potential losses. Again, if the eurozone was as strong as some politicians make it appear to be, Goldman Sachs would certainly not be turning away such a large amount of money to potentially be made. This, to me, is a sign that the eurozone is far closer to another financial crisis than people are reporting. (Source: “Goldman Turns Down Southern Europe Banks as Crisis Lingers,” Bloomberg, November 26, 2012.)
Earlier in the year, Goldman Sachs’ President and COO, Gary Cohn, stated that he believes there’s only a small probability that the eurozone will remain together. (Source: “Goldman Turns Down Southern Europe Banks as Crisis Lingers,” Bloomberg, November 26, 2012.) This line of thinking is similar to my own; I, too, have been recommending my readers avoid firms with exposure to the weaker eurozone members, as I foresee the financial crisis becoming worse in 2013.
Considering the state of the Spanish economy, I’m not surprised Goldman Sachs has passed on this deal. While the deals in question originate within the weaker parts of the eurozone, the financial crisis on that continent will have a greater effect on more than just those localized companies. Many American firms have extensive exposure in the eurozone, and I’ve been warning my readers to stick with firms that have minimal or no direct link to the fallout if the eurozone’s financial crisis were to worsen.
I’ve always believed that talk is cheap. Many companies and financial firms come out with their opinions about a given market. These opinions always have to be taken with a grain of salt. However, actions speak volumes. If a company that is as profitable as Goldman Sachs is turning its back on a potential money-making deal, to me, that is a worrying sign, one that should cause people to become more bearish on the eurozone, an area in which I believe we’ll see a worsening of the financial crisis in 2013.
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