Recently, the Federal Reserve ran its annual bank stress test to see how banks would perform in the event of severe economic turbulence. However, it seems like Goldman Sachs (NYSE:GS) isn’t happy with the score it received. In fact, the Fed’s test predicted that Goldman would lose over $40 billion in a severe downturn, which was worse than its large rivals. Although the bank can formerly appeal its score, the chances of getting the Federal Reserve to change its mind are slim, according to experts.
They note that no bank has successfully appealed the Fed’s stress test results since the process was updated four years ago, and all eight attempts since then have been denied. In addition, Banks and lobbyists argue that the appeals process is biased against them, and experts see little evidence that it effectively checks the Fed’s discretion.
Goldman’s CEO, David Solomon, also recently criticized the stress test and argued that it didn’t reflect the company’s changes, such as exiting certain businesses and reducing outside investments. While Goldman hasn’t confirmed if it will formally appeal, it has two weeks to decide.
The Fed’s score is important because the current outcome could require Goldman to hold an extra $6 billion in capital to cover potential losses, which would limit its ability to lend, trade, and reward investors through share buybacks and dividends.
Is GS Stock a Good Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on GS stock based on 15 Buys, four Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. After a 50% rally in its share price over the past year, the average GS price target of $469.65 per share implies that shares are fairly valued.
