Goldman Sachs has a remarkably high capital ratio, with far more cash than it needs to pay off any debt maturities coming due or meet any regulatory capital requirements on the books. So what is Goldman planning to do with its $172 billion of excess capital?
It’s planning on hanging on to it.
On the earnings call going on right now Goldman explained why it isn’t more actively deploying its capital in the markets.
- Sellers still have unrealistically high prices. Although we’ve been hearing for over a year that this is the buying opportunity of a lifetime for distressed debt, Goldman has mainly focused on buying plain-vanilla triple As and government securities. It says it would like to buy up some riskier paper, but the sellers are still demanding price levels that Goldman thinks don’t make sense.
- Government might raise capital levels, so we’d better hold on to cash. The plans to reform the regulation of the security sector have created an uncertainty about what the new capital rules may be. To prepare for more stringent capital requirements, Goldman is holding on to excess capital.
- “We’re way far away from out of the woods.” The world is still a scary place, with markets and economies still on the rocks. Goldman wants to keep up its liquidity just in case things stay ugly or get uglier.
In short, Goldman Sachs is just like the rest of us. It’s saving up for rainy days ahead and it still thinks sellers are charging too much for their crappy assets.
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