Goldman Sachs Spent More on 2011 Stock Buybacks Than It Earned

Goldman Sachs Group Inc. (GS), which reported that 2011 profit fell to the lowest level since 2008, spent more to buy back stock than it earned in the year.

The company spent $6.04 billion to repurchase 47 million shares at an average price of $128.33, more than its $4.44 billion in net income, the New York-based bank said today. It also paid $1.93 billion in preferred stock dividends during the year, including $1.64 billion to redeem an investment by Warren Buffett’s Berkshire Hathaway Inc.

The Federal Reserve and other regulators around the world have encouraged banks to boost capital to meet requirements established by the Basel Committee on Banking Supervision. Under the Fed’s Comprehensive Capital Analysis and Review, or CCAR, U.S. lenders must prove they have enough capital to withstand a “severe” U.S. recession before they can increase dividends or repurchase shares.

“We put in what we want to do and the Fed tells us yes or no,” David A. Viniar, Goldman Sachs’s chief financial officer, told analysts when asked how the bank was able to spend more on buybacks than it earns. “I don’t think you should expect that it will be a long-term sustainable way we do things of buying back more than earnings.”

Viniar estimated that Goldman Sachs had so-called Tier 1 common equity equal to just under 8 percent of the bank’s risk- weighted assets at the end of 2011 under the Basel III requirements. Based on analysts’ current estimates for the bank’s earnings and the maturity of some assets, Viniar said the capital would be “a little bit below 11 percent” of assets at the end of 2013.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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