Goldman Sachs Exceeds Fed Minimum Capital Level Under Stress Scenario

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.

The stress tests simulate a worldwide 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.

Write to Justin Baer at [e-mail]

(END) Dow Jones Newswires

June 23, 2016 16:45 ET (20:45 GMT)

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