For Goldman Sachs Status Quo Is Too 'Comfortable' (Correct)
Corrected from from 1:15 p.m. ET to reflect Goldman CFO name and closing share prices.
NEW YORK (TheStreet) -- Goldman Sachs
As with the first quarter of 2013, much of the bank's Tuesday earnings beat was attributable to businesses such as private equity investments and debt trading that investors expect to be challenged in coming years, as interest rates normalize and new regulations kick in.
The nation's pre-eminent investment bank was also unwilling to speak in detail about where it stands in relation to a minimum 5% Basel III supplimentary Tier 1 leverage ratio proposed by Federal Deposit Insurance Corporation.
On a conference call with investors, Goldman's newly appointed chief financial officer Harvey Schwartz repeatedly said the firm was "comfortable" with its capital position and leverage ratios. Analysts, however, pressed for more specific disclosure.
At one point, Schwartz defined Goldman's definition of "comfortable" to Morgan Stanley analyst Betsy Graseck as "comfortable," in a war of words similar to one featured in JPMorgan's
"I think the word of the day is comfortable," Mike Mayo, a banking analyst at CLSA, said on the call.
Given Goldman's trouble in getting the Federal Reserve to approve its plans to return capital to investors followng March stress tests, the investment bank's capital position and leverage was the biggest point of questioning from analysts.
CFO Schwartz pointed to Goldman's balance sheet deleveraging in the wake of the financial crisis and its rising capital ratio's under Basel I and Basel III guidelines as signs of the bank's improving financial position.
While Schwartz also stressed to Goldman's consistent ability to meet new post-crisis rules, he wouldn't disclose the banks' standing under advanced Basel III guidelines or the new proposed leverage capital rules.
Goldman will provide additional detail on its Basel III capital ratios and leverage under the FDIC's proposed guidelines when the firm has had time to come up with exact numbers, Schwartz said. He did note a changing characterization of assets under the FDIC's proposed guidelines such as cleared OTC derivatives and custody assets could alter projected leverage ratios to Goldman's benefit.
The bank could see a boost if it can provide clarity to investors on its capital relative to new regulation, especially given Schwartz's confidence. "I generally kind of accept his answers, although I know it frustrated folks out there," Marty Mosby, a banking analyst at Guggenheim Securities, said of Schwartz's comments on the investor call.
For now, Goldman is simply telling investors it is "comfortable." According to most analyst projections, only Wells Fargo
If analysts appeared unimpressed with Goldman's discussion of its balance sheet, the bank's better-than-forecast earnings may also prove a point of concern.
Goldman reported a second-quarter profit of $1.93 billion, on revenue of $8.61 billion, beating adjusted estimates of $1.48 billion and $7.97 billion, respectively.
Adjusted earnings per share of $3.70 beat an estimate of $2.89 a share, according to analyst forecasts compiled by Bloomberg.
While Goldman's earnings continue to beat Wall Street's expectations, investors will be looking for better earnings from the bank's equities and investment management businesses in coming quarters.
"Generally it was fine," Guggenheim's Mosby said of Goldman's earnings beat.
The analyst noted Goldman's fixed income revenues were resilient to rising interest rates over the quarter and may indicate a focus in the bank's trading division on customer flows over proprietary bets.
"I would have liked to have seen more investment banking revenues," Mosby added.