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Goldman Sachs: Dow Winner

The KBW Bank Index (I:BKX) rose over 1% to close at 64.16, with all but two of the 24 index components rising for the session.

Shares of Citigroup (C - Get Report) were up 2% to close at $51.09. Citigroup's shares have returned 29% this year. The strong economic news out of Asia is especially important for the company, which reported that 20% of its second-quarter revenue and 22% of its earnings came from its businesses in Asia.

Goldman Sachs

Goldman's shares have returned 31% this year, following a 43% return during 2012. The shares trade for 1.2 times their reported June 30 tangible book value of $141.62, and for 10.6 times the consensus 2014 earnings estimate of $15.54 a share, among analysts polled by Thomson Reuters. The consensus 2015 EPS estimate is $16.05.

Another major near-term event for Goldman is the stake Warren Buffet-led Berkshire Hathaway's (BRK.B) will take in the investment bank's common shares in October.

When Berkshire made a $5 billion preferred investment in Goldman in 2008, Berkshire was granted 43.5 million warrants to purchase Goldman common shares with a strike price of $115. Rather than exercise the option, Berkshire agreed earlier this year to accept common shares in Goldman equal to the profit on the warrants, based on Goldman's average share price during the 10 trading days prior to Oct. 1. Berkshire will end up holding roughly 3% of Goldman's common shares, valued at about $2.2 billion.

Goldman reported that during the first half of 2013 it repurchased 20.6 million shares for $3.12 billion. But investors may be concerned over a possible curtailment of the investment bank's return of capital to investors over coming years. Citigroup analyst Keith Horowitz estimates that if federal regulators accept the Basel Committee's proposed changes in large banks' supplementary Tier 1 leverage calculations, Goldman's June 30 supplementary Basel III Tier 1 leverage ratio would drop to 3.9% a reported 4.8%.

Under rules proposed in July by federal regulators, the largest U.S. banks -- including Goldman -- will be required to raise their supplementary Basel III Tier 1 leverage ratios to at least 5.0% to be considered well-capitalized.

GS Chart GS data by YCharts

Interested in more on Goldman Sachs? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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