(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.

Franchise Will 'Suffer'

Goldman Sachs's most senior employees, known as partners, have every incentive to put the firm's legal and political problems behind them, Hintz said.

He kept his "outperform" rating on Goldman Sachs. The stock fell $2.32, or 1.6 percent, to $138.41 at 9:55 a.m. in New York Stock Exchange composite trading. Goldman Sachs has declined 16 percent this year through yesterday.

"As politicians continue to criticize the firm and the public scrutiny persists, we believe that Goldman's clients will begin to rethink their relationship with the firm and the franchise will ultimately suffer," he wrote. "With approximately 17 percent of the ownership in the hands of current and former partners, this control group has ample motivation to make amends with politicians and the public in order to reduce the threat to its franchise."

In July, Goldman Sachs agreed to pay $550 million to settle a civil fraud suit by the U.S. Securities and Exchange Commission that alleged the firm misled clients about a mortgage-linked investment. The settlement, in which the company also admitted to making a "mistake," was agreed to three months after the firm's statement that the allegations "are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation."

Fabrice P. Tourre, the only Goldman Sachs employee who was also sued by the SEC in that case, hasn't settled that suit.