Goldman expects to "moderate" its pace of buybacks compared with the second quarter, when it repurchased $3.5 billion of common stock, Chief Financial Officer Denis Coleman told analysts Monday. The retreat is in response to the company's "higher than expected" stress capital buffer requirement, Coleman said during the firm's quarterly earnings call.
Starting Oct. 1, Goldman's stress capital buffer, which is mandatory capital that larger banks must hold in order to weather an economic downturn, will jump from 5.5% to 6.4%. The 90-basis-points year-over-year increase, which is one of the biggest among large and regional banks, is based on the results of the Fed's annual stress tests, released in late June.
Goldman is pushing back on the Fed's findings. During Monday's call, CEO David Solomon said the firm is "engaging" with regulators to better understand the "discrepancy" between the way Goldman views its ability to handle an economic downturn and how the Fed views it.
"The year-over-year increase in our stress capital buffer does not seem to reflect the strategic evolution of our business and the continuous progress we've made to reduce our stress loss intensity, which the Federal Reserve has recognized in our last three tests," Solomon said.
The Financial Times reported Sunday that Goldman filed an appeal with the Fed over its latest stress test results. On Monday, a Goldman spokesperson declined to comment on whether the firm has filed an appeal and referred back to executives' public remarks on the call.
One analyst on the conference call wanted to know if the outcome of the discussions between Goldman and the Fed would be made public. Solomon took the opportunity both to express appreciation for stress testing — saying it is "an important component of the Fed's mandate to ensure the safety and soundness of the banking system" — and to criticize how the process actually works.
"It lacks transparency. It contributes to excess volatility in the stress capital buffer requirements, which obviously makes prudent capital management difficult for us and all of our peers," he said.
Despite the higher buffer requirement, Goldman upped its common stock dividend from $2.75 to $3 as of July 1. It did not provide details Monday about how steeply it might pull back on share repurchases, but Coleman said the firm is still in a position to return capital to shareholders.
"Given the $3.5 billion number in the second quarter, we thought it was advisable to indicate we would be moderating our repurchases," Coleman said. "But we still do have capital flexibility, and based on what we see develop from the client franchise, we will make that assessment."
During the quarter, Goldman's net revenues rose by 17%, as its two primary businesses — global banking and markets, and asset and wealth management — reported upticks in profitability. Revenues for the former business increased 14%, while revenues for the latter jumped 27%.
Investment banking fees — which the firm's global banking and markets unit collects — also rose by double digits. The 21% climb to $1.7 billion was the result of higher net revenues in debt underwriting and equity underwriting, the company said in a press release.
Goldman said its backlog of investment banking fees "increased significantly" from the first quarter and "increased slightly" from the end of last year. In a recent securities filing, Goldman described that backlog as "an estimate of net revenues from future transactions where we believe that future revenue realization is more likely than not."
For the quarter, Goldman's consumer lending business, which is a fraction of the size of its two primary businesses, reported revenues of $669 million, up 2% from the year-ago period. The increase was at least partly attributable to higher average credit card balances and higher average deposit balances, the firm said.
The military-focused company, which operates an insurer and a $111.7 billion-asset bank, has tangled with regulators during Wayne Peacock's tenure. He will retire in the first half of 2025.
Four companies are fighting CFPB enforcement actions by claiming the agency cannot be funded by the Federal Reserve, which has not been profitable since 2022. The consumer bureau calls the new legal theory "meritless."
Even as quantum computers still can't break encryption, the banking industry has been preparing for more than a year to start switching to post-quantum cryptography.
U.S. Eagle Federal Credit Union said it plans to acquire Southwest Capital Bank in a transaction slated to close next year. It would help the buyer expand its cannabis banking operation.
Federal Reserve Gov. Christopher Waller says the central bank is tracking research on financial stability risks related to payments, as well as blockchain and crypto developments.
