Goldman Exceeds Fed Minimum Capital Level Under Stress Scenario -- 2nd Update
June 23 2016 - 5:35PM
Dow Jones News
By Justin Baer
Goldman Sachs Group Inc. has the capital to keep lending in a
severe economic downturn, the Federal Reserve calculated Thursday
in the first stage of its annual stress tests.
At the low point of a hypothetical recession, Goldman's common
equity Tier 1 ratio, which is a measure of high-quality capital as
a share of risk-weighted assets, was 8.4%, exceeding the 4.5% level
the Fed views as a minimum, the central bank estimated.
Goldman's Tier 1 leverage ratio, which measures high-quality
capital as a share of all assets, was 6.3%, exceeding a 4%
minimum.
Goldman's own stress tests reached similar conclusions. The
firm's common equity Tier 1 ratio fell to 8.9%, according to a
report Goldman published Thursday on its website. Its leverage
ratio, according to its own calculations, touched 6.5% at the low
point of the recession scenario.
The stress tests simulate a world-wide recession. The results
were under the Fed's "severely adverse" scenario of financial
stress, which this year includes a 10% U.S. unemployment rate,
significant losses in corporate and commercial real estate lending
portfolios, and negative rates on short-term U.S. Treasury
securities.
The results will factor into the Fed's decision next week about
whether to approve the bank's plan for rewarding shareholders with
dividends or potential share buybacks. Banks whose capital ratios
dropped close to minimum levels may choose to scale back their
dividend or buyback plans before the Fed announces its final
decision Wednesday. That day the banks can choose to announce
whether they are raising their dividends or buying back more
shares, important for enhancing shareholder returns.
Goldman has been a big buyer of its own stock in recent years,
with repurchases totaling 88% of profits following its 2015 stress
test, according to Barclays analysts. The firm also raised its
quarterly dividend to 65 cents a share, from 60 cents.
The Fed approved Goldman's capital plan last year. That occurred
after the firm revised its initial plan request due to its
performance on the first part of the stress-test results.
A Goldman spokesman declined to comment.
Write to Justin Baer at justin.baer@wsj.com
(END) Dow Jones Newswires
June 23, 2016 18:20 ET (22:20 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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