NEW YORK (
posted first-quarter earnings on Tuesday that were well ahead of analyst expectations but far behind the pace it set before the crisis.
The stock was sliding more than 2% in afternoon trades, a move that follows analysts pressing CFO David Viniar on the company's conference call about what Goldman plans to do with what they perceive to be "excess" capital.
Goldman Sachs Chairman and CEO Lloyd Blankfein
"I mean, you're sitting there on $64 billion of tangible common
equity (TCE)," Oppenheimer analyst Chris Kotowski told Viniar during the call.
That compares to TCE of $40 billion at
, $31 billion for
Bank of America
and "$30-ish billion" for European banks like
Kotowski wondered aloud when the differential between Goldman and its peers would disappear.
Viniar acknowledged Goldman has "been pretty conservative," adding, "We have more capital than we need for the business right this second, but there's a lot of uncertainty out there." As for rivals' thinking, Viniar said "you should ask them that question."
Not all analysts are in agreement about the fact that Goldman is being far more conservative with its capital than peers, however.
In an interview with
, Soleil Securities analyst Carole Berger took issue with Kotowski's numbers. She argues he isn't making "an apples to apples comparison" between Goldman and JPMorgan on capital as she believes he is only focusing on capital that JPMorgan holds in its investment banking and securities division. It has a higher capital cushion in the larger parent company, she says. A call to Kotowski wasn't returned.
As for what Goldman will do with its excess capital, Viniar gave few clues. One possibility, he said, would be to buy back shares. Another would be to invest in "technology and client connectivity" in fixed income currencies and commodities trading, as technological advances in those products mirror ones already seen in equities. Viniar stressed, however, that regulatory changes that are still to be determined might cause Goldman to scrap this plan.
There is also the question of how much excess leverage regulators will allow Goldman and other banks to take on.
Goldman's leverage ratio is at about 13, down from roughly 30 before the crisis, according to Bernstein Research analyst Brad Hintz. Hintz believes it may rise to 15 or 16, but not much higher.
"All it leads to is the continual problem of Goldman explaining their business model going forward," Hintz says.
Hintz predicts Goldman will have a smaller trading business going forward with a powerful investment banking franchise and a sizeable lending book for distressed debt and supporting the investment banking clients.
"It's not going to be lending like Bob's Welding Shop," Hintz quipped.
Another way to make Goldman more profitable, Hintz said, would be to lower compensation or reduce headcount.
"We analysts are looking at the comp ratio and asking, 'is it going down and is it permanent?' and Goldman, always opaque, is being coy about that," Hintz says.
Written by Dan Freed in New York
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