During the Federal Reserve stress tests last week, Goldman performed more poorly than other big banks. As a result, analysts and investors are showing concern that the bank may be barred by regulators from buying back its own stock, or increasing dividends. If this occurs, Goldman would lose a large component of their profitability. An analyst from KBW estimated that if Goldman is unable to repurchase shares, it could earn 42 cents a share less than expected this year, and $1.78 a share less than expected next year. Consequently, share of Goldman fell 1.7 percent on Friday, while the overall bank sector was up.
The stress tests are used to ensure that banks have adequate capital to sustain losses if another financial crisis was to occur. This year, the Fed measured how banks would do in a financial crisis if the stock market fell 60 percent, estimating that Goldman would lose $23.8 billion in its trading operations. The results of this stress test are in part due to the fact that Goldman has been returning a large share of its profits to its shareholders through buybacks and dividends, leaving it with less capital than it would have otherwise.