Goldman raises possible legal cost estimate to US$5.9b

[NEW YORK] Goldman Sachs Group Inc. increased its estimate for reasonably possible legal costs in excess of reserves by 55 per cent to US$5.9 billion.

The second-quarter figure, which the New York-based firm disclosed in a regulatory filing Monday, was up from US$3.8 billion three months earlier. Unlike in previous quarters, the estimate included costs that could arise from a Department of Justice probe into sales of mortgage-backed securities.

Goldman Sachs has held talks with the Justice Department over a settlement of that probe and may pay as much as US$3 billion, a person familiar with the talks said in June. The bank added US$1.45 billion to reserves for litigation and regulatory proceedings in the second quarter, more than in the previous five quarters combined.

The estimate released Monday gives investors an idea of potential losses beyond those reserves. US firms began disclosing estimates for possible legal losses after the US Securities and Exchange Commission told finance chiefs in 2010 they should provide investor guidance "when there is at least a reasonable possibility" costs will be incurred, even if the risk is too low to require reserves.

Goldman Sachs also said in the filing that it reached a settlement agreement in June on a separate suit over sales of mortgage securities in 2007. The firm will pay US$270 million in that case, two people familiar with the matter said last week.

BLOOMBERG