Goldman Sachs’ SCB revision could mean increased buybacks, Morgan Stanley says

With Goldman Sachs (NYSE:GS) succeeding in lowering its stress capital buffer by 20 basis points to 6.2%, Morgan Stanley analyst Betsy Graseck now sees the potential for Goldman to increase its stock buybacks.

“GS has more excess capital than our prior estimates. We estimate ~$7.5B of excess capital against the standardized CET1 binding constraint (as of 2Q24), an increase of ~$1.4B driven by the 20bp reduction in SCB,” the analyst wrote in a note to clients.

That means the bank can buy back more stock than it was considering when its SCB was at 6.4%, which was 90 bps higher than its prior SCB. “Given our higher than expected SCB requirement, we plan to moderate buybacks versus the levels of the second quarter,” Goldman (GS) Chief Financial Officer Denis Coleman said during the company’s Q2 earnings call.

The Fed’s decision may have broader repercussions. Graseck noted that the Fed committed to analyze whether to revise regulatory reporting forms to better capture data and to explore stress-test model refinements. “We view this statement and the GS’s SCB modification as a clear positive for future transparency and outcomes of the stress test for the banking industry as a whole,” she said.

Morgan Stanley increased its 2025 EPS estimate for Goldman Sachs (GS) by $0.11 to $44.95 due to expected lower share count and increased its price target on the stock by $1 to $562.

MS has an Overweight rating on Goldman stock.

Goldman (GS) stock rose 0.5% in Friday premarket trading.