Goldman Sachs Is ‘Comfortable’ With U.S. Leverage Ratio
Goldman Sachs Group Inc. (GS) Chief Financial Officer Harvey Schwartz said the firm is “very comfortable” with its ability to meet a proposed U.S. minimum ratio of capital to assets.
Schwartz, speaking on a conference call with analysts and investors today, declined to estimate where the leverage ratio stands for the parent company or the bank subsidiary. Under the U.S. plan, the company would need capital equal to 5 percent of assets and the bank unit must have 6 percent.
Goldman Sachs will wait to see how the U.S. proposal changes before taking action, Schwartz said. Earlier this year, he told investors the New York-based bank had benefited from not acting on a proposed rule on risk weighting for mortgages, a regulation that was later softened.
“This is a proposed rule, so let’s see how the dialogue goes with regulators,” Schwartz said. “Predicting rules and responding can be incredibly costly, you can get wildly misdirected.”
The proposed leverage ratios for the biggest U.S. banks go beyond the 3 percent global minimum requirement that the Basel Committee on Banking Supervision approved to help prevent another financial crisis. The changes would make eight lenders fund more of their assets with capital that can absorb losses instead of with borrowed money.
While Schwartz said Goldman Sachs won’t have to make major adjustments, he added that the firm hasn’t had time to thoroughly examine its ratios and wants more information on the rules. Analysts pushed him to be more specific, citing rival banks that gave figures for their holding companies or disclosed whether they met the proposed minimums.
“What I hear you saying is, ‘Trust us, we’ll be there,’” Mike Mayo, an analyst at CLSA Ltd., said on the conference call. “On the other hand, you’re not disclosing a number like your peers have done, and perhaps other peers will do. So on a disclosure basis, you’re behind peers.”
Schwartz said the firm viewed the compliance date of Jan. 1, 2018, as “miles away,” and noted that the the proposal was announced last week.
“We are all subject to having sort of knee-jerk reactions to these proposed rules when they come out,” said Schwartz, 49. “The regulators consistently, at least so far, have been very thoughtful about the glide path.”
While banks would have more than four years to comply, lenders may have to retain some capital to meet the requirements that they otherwise could pay out through dividends or share repurchases. Goldman Sachs, led by Chief Executive Officer Lloyd C. Blankfein, 58, returned $5.55 billion to shareholders last year, according to its annual regulatory filing.
Citigroup Inc. (C), the third-biggest U.S. bank, said its ratio averaged 4.9 percent in the second quarter and in June exceeded the 5 percent minimum. The New York-based company hasn’t calculated a ratio for its deposit-taking unit, CFO John Gerspach said yesterday. He said the ratio was about 6 percent in March.
JPMorgan Chase & Co. (JPM), the biggest U.S. bank, said last week that both its holding company, which had a 4.7 percent ratio, and deposit-taking subsidiary fall short of the proposed minimums. CEO Jamie Dimon, 57, criticized the plan for going further than international requirements.