(Bloomberg News) Goldman Sachs Group Inc. won't face criminal prosecution related to sales of mortgage-linked securities because such a move could threaten the U.S. financial system, according to Brad Hintz, an analyst at Sanford C. Bernstein & Co.

The U.S. Department of Justice, which is reviewing a Senate subcommittee report that alleged Goldman Sachs misled clients before the financial crisis, will avoid jeopardizing the fifth-largest U.S. bank by assets because it's viewed as "too big to fail," Hintz wrote in note to clients today.

"If an alleged violation is identified during a Goldman investigation, we expect a reasoned response from the Justice Department," Hintz wrote. "In a worst case environment, we would expect a 'too big to fail' bank such as Goldman to be offered a deferred-prosecution agreement, pay a significant fine and submit to a federal monitor in lieu of a criminal charge."

Stephen Cohen, a spokesman for New York-based Goldman Sachs, declined to comment on Hintz's note. Laura Sweeney, a spokeswoman for the Justice Department in Washington, didn't immediately reply to requests for comment.

Under a deferred-prosecution agreement, the U.S. files charges against a company and agrees to dismiss them after a certain period, typically if the company pays a fine or penalty and improves its governance or other practices. In October, the Justice Department dismissed a conspiracy case against UBS AG, Switzerland's biggest bank, after the expiration of an 18-month deferred prosecution agreement with the Zurich-based bank.

Litigation Risk 'Manageable'

Hintz, ranked the No. 1 analyst covering brokerage firms in a survey by Institutional Investor last year, said that the Justice Department's approach to criminal charges against companies has changed since accounting firm Arthur Andersen LLP's business collapsed following a felony charge.

A 2003 Justice Department policy document "stated that prosecutors can reward cooperation by offering a negotiated settlement to a targeted company that can range from immunity from criminal indictment to a deferred prosecution agreement," Hintz wrote. "Ultimately, the targeted company is treated not as a hardened criminal but as the equivalent of a juvenile offender that can be reformed."

Goldman Sachs's potential civil litigation risk related to sales of mortgage-backed securities and collateralized debt obligations "is manageable," Hintz wrote, because the statute of limitations for many of the claims has already passed.

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