Why Goldman Sachs Group, Inc. (GS) & Morgan Stanley (MS)’s Results Are Unimpressive

Goldman Sachs Group, Inc. (NYSE:GS)’s Tier 1 common ratio fell to 12.7% and its Tier 1 capital ratio fell to 14.4% –reflecting the revised market risk regulatory capital requirements. On Dec. 31, 2012, its common ratio was 14.5%, while its capital ratio was 16.7% under Basel 1 — i.e. before implementation of revised market risk regulatory-capital requirements.

Similarly, Morgan Stanley’s capital ratio and common ratio declined to 13.9% and 11.5%, respectively, from a capital ratio of 16.9% and a common ratio of 13.3% a year ago.

For both of these banks, the ratio is well above 5%. But the Fed believes that if the banks continue with their current dividends and buyback plans, then under a 2014 stressed scenario these ratios could fall to 5.8%(Goldman Sachs) and 5.7% (Morgan Stanley), thus coming dangerously close to the red line.

Besides these two banks, Feds have also warned JPMorgan Chase & Co. (NYSE:JPM), whose common equity ratio could fall to 5.6%. The three firms are required to fix the problems, while JPMorgan Chase & Co. (NYSE:JPM) and Goldman Sachs are also asked to resubmit their plans to the Federal Reserve before the end of the third quarter.

The article Why Goldman and Morgan Stanley’s Results Are Unimpressive originally appeared on Fool.com and is written by Sarfaraz Khan.

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