In conflict with its own management team, Goldman analysts conclude structural, not cyclical...

In conflict with its own management team, Goldman analysts conclude structural, not cyclical factors are behind the poor performance of the U.S. banking sector. More than half of the top 25 U.S. banks aren't earning enough to cover their cost of capital, says the team, which recommends the big players improve returns by shrinking business lines and instead using the money to buy back shares.

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Comments (8)
  • Tom Armistead
    , contributor
    Comments (6294) | Send Message
    The cost of capital is driven by share prices, which reflect the dismay any prudent investor feels when looking at their opaque balance sheets, aggressive disregard of ethical constraints, and heavy reliance on derivatives.


    Guess what? They can improve their cost of capital by doing things that investors understand, and that are supportive of the real economy.


    That's too simple for them to understand, apparently. Are you listening, Jamie? Investors really, really don't like that London Whale stuff.
    10 Sep 2012, 11:54 AM Reply Like
  • David Urban
    , contributor
    Comments (1031) | Send Message
    Spot on. If you back out the DVA and loan loss clawbacks many large banks have very poor core operations.
    10 Sep 2012, 12:52 PM Reply Like
  • what do I know
    , contributor
    Comments (1044) | Send Message
    Along with the writer of this column the readers have shown no understanding of what is cost of capital. It is made up of two costs: the cost of borrowed money and the cost of equity capital. The cost of borrowed money has the part played by the tax, it is supported by the federal government and the equity capital is what the stock holders will tolerate. The cost of capital is not a fixed number and the higher number may mean the company is earning good money. But, looking at the cost for borrowed fund ( at the beginning of the rate curve) is so low ( almost every body saying bank could borrow money at no cost and earning good money from home mortgage),and reversing the previous reserve and etc. should only increase earning. Somebody should check out those Analyst at GS.
    10 Sep 2012, 02:53 PM Reply Like
  • Colin Doyle
    , contributor
    Comments (786) | Send Message
    Heh, it's Goldman, so we already know they're talking their book. :)
    11 Sep 2012, 06:28 PM Reply Like
  • parenthetical
    , contributor
    Comments (2) | Send Message
    Not only that, but if the real valuation numbers were to be revealed on the distressed home loans, my guess is they would have to liquidate.
    10 Sep 2012, 03:12 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2867) | Send Message
    An analyst at a big investment bank recommending that companies sell assets and explore spinning off businesses and other strategic alternatives??? I wonder what investment bank he recommends they hire to explore these processes??? Hmmm...
    10 Sep 2012, 05:42 PM Reply Like
  • jeffreychood
    , contributor
    Comments (43) | Send Message
    Sounds like the barber recommending haircuts . . .
    10 Sep 2012, 07:16 PM Reply Like
  • David Urban
    , contributor
    Comments (1031) | Send Message
    They should have went this route years ago like how they cleaned up the S&L crisis.


    Would have shifted the assets off the books of the banks but the real problem lied in the derivative markets and actually figuring out ownership.
    10 Sep 2012, 05:59 PM Reply Like
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