Today, Bloomberg reports that Goldman Sachs Turns Bullish on Europe Banks as Debt Risk Eases.The report goes on to state:

The U.S. bank that makes the most revenue from trading advised investors to take an “overweight” position on banks, raising its previous “neutral” recommendation, according to a group of equity strategists led Peter Oppenheimer. Investors should pay for the trade by lowering holdings of consumer shares, he wrote.

“For financials the narrowing of sovereign spreads in peripheral eurozone, which our economists expect to continue, is a clear positive,” London-based Oppenheimer wrote in the report dated Feb. 3. “Banks are one of the least expensive sectors in the market and the trade-off between their growth prospects and earnings in the next few years looks especially attractive.”

Unfortunately, the risks of this particular trade were not articulated, and I feel that the risks are material. Far be it for me to disagree with the "U.S. bank that makes the most revenue from trading", but they have been wrong before - many times before. Reference Is It Now Common Knowledge That Goldman’s Investment Advice Sucks??? or Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? for more on this topic.

Attention subscribers: A new subscription document is ready for download The Inevitability of Another Bank Crisis

So where is the risk?

The impact of the Asset Securitization cum Sovereign Debt Crisis to bank balance sheets should become the market and media focus. The full cost of cleaning up the balance sheets of financial institutions particularly against the backdrop of adverse macro shocks emulating from sovereign defaults is not fully known. Structural weaknesses in sovereign balance sheets could easily spill over to the financial system due to the fact that most banks are stuffed to the gills with sovereign debt – highly leveraged, and marked as risk free assets at par. This can have broad, adverse consequences for growth in the medium term.

Another stint on Max Keiser discussing topics such as Goldman's Facebook offering that never was, what happens when its the banks that walk away from a home, phantom banking profits that never were, and more shenanigans that are the tour de force that is today's banking system and economy. To skip directly to the Reggie Middleton interview, move to 11:55 in the video.

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It's official, the mainstream media has turned on those "doing God's work" and come to the side of BoomBustBlog.

I must admit, I was shocked when I first read this headline and saw the accompanying cover. After all, Bloomberg was the organization that published a story lavishing adulation upon a young Goldman analyst that had a 38% win rate throughout the credit crisis and (faux) recovery. I see those results as mediocre at best, and downright horrible from a realistic perspective. To make matters even worse, I believe I ran circles not only around that analyst, but the entire firm, see Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? The next thing you know, this heavy nugget of truth is dropped, and all I can say is.... Damn. Let's excerpt some juicy tidbits from Blankfein Flunks Asset Management as Jim Clark Vows No More Goldman Sachs:

On Jan. 2, Jim Clark, a founder of such technology icons as Netscape Communications Corp. and Silicon Graphics Inc., was at home in Palm Beach, Florida, when he got an e-mail from an executive at Goldman Sachs Group Inc.’s private wealth management division. Goldman was offering Clark a chance to invest in the closely held social-networking company FacebookInc. The deal -- through a fund overseen by Goldman Sachs Asset Management -- was being offered to other Goldman investors at the same time, Bloomberg Markets magazine reports in its March issue.

The firm would levy a 4 percent placement fee on clients, plus a half percent “expense reserve” fee. It would also require investors to surrender 5 percent of any profits, known as “carried interest,” according to a Goldman Sachs document.

Clark turned Goldman down. In June, 2009, he had yanked most of the roughly $400 million he had invested with the firm due to what he considered bad advice and poor performance, including a big hit from GSAM’s Global Alpha hedge fund. This offer, he says, just irked him further. A few months earlier, he had purchased a stake in Facebook through another firm for a lower price, he says, and without the onerous carried interest.

“I don’t think it’s reasonable,” Clark says. “It’s just another way for them to make money from their clients.”

Jim Clark is a smart man, and I don't think he needs me to assure him of that. For those who may not be as hip to fees and valuations, I published The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models which clearly demonstrated that this offering was primarily for Goldman's bonus pool integrity and basically a ripoff for clients. In the following post, I declared "Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure". As excerpted:

Goldman Sachs posted a 53 percent decline in quarterly profit, due in large part to the reversion to mean of their outsized trading profits over the last several quarters - as duly warned in the BoomBustBlog research reports. As per CNBC:

Fourth-quarter net income after payment of preferred stock dividends totaled $2.23 billion, or $3.79 per share, compared with $4.79 billion, or $8.20, a year earlier. Net revenue fell 10 percent to $8.64 billion.

Analysts on average expected profit of $3.76 per share on revenue of $9 billion, according to Thomson Reuters I/B/E/S.

Net revenue dropped sharply, as we anticipated as well.

Net revenue in fixed income, currency and commodities slid 39 percent from the third quarter to $1.64 billion, reflecting what Goldman called "generally low client activity levels."

The Goldman, et. al. story is not over yet. There is still a material amount of legacy assets (losses) to be recognized at market value. The market is not returning to the point of inception of this stuff, and the true extent of the losses have yet to be taken. I have been uber bearish from this perspective, yet market prices appeared to disagree. The problem was simply a matter of gross, coordinated misrepresentation (a fancy way of saying "lying, on  a large scale - and with the cooperation of regulators"). I was absolutely correct, and now that the truth has come out, will there be any rule of law? Let's reminisce through referencing several posts from 2008 wherein I made clear that Goldman Sachs was much riskier than practically ANYBODY on the street and in the media recognized...

After hearing of Goldman's plans to allow investors to skirt SEC guidelines and issue private shares of Facebook to the public, I had a plethora of warnings and admonitions. Once I (and my best analyst) took the time to parse the numbers and the logic behind the deal, I concluded that Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!

In a nutshell, not only is the offering unlawful on its face (although probably lawful due to the financial engineering cum law splicing from the wizards at Goldman), the valuations were simply stuff of fairy tails and dot.com implosions.

I read this headline from the Financial Times and said to myself, "Okay Reg, Don't say 'I told you so'". Thus, you won't hear it from me, at least not this time. As reported today in the Financial Times: Goldman reveals fresh crisis losses and Goldman’s republished results present a new picture