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The Federal Reserve on Wednesday released the results of its annual stress test to see how America\u2019s 31 largest banks would fare in a financial crisis. While the hypothetical recession showed that all banks were well protected against an actual recession, they fared worse on average than in last year\u2019s test.<\/p>\n
According to a Bank of America<\/a> report out Thursday, the \u201cworst hit\u201d was Goldman Sachs<\/a>, with a year-over-year increase of roughly 100 basis points in its stress capital buffer. Bank of America\u2019s analysts said this implies Goldman is exceeding the minimum requirement for globally important banks by approximately 60 basis points, meaning the firm has less excess capital compared with similarly sized peers. Columbus, Ohio-based Huntington Bank and New York-based Citigroup<\/a> were among the best performing.<\/p>\n Goldman shares were down about 2% to roughly $447 at 12:30 ET, but so far this year the investment bank\u2019s stock has been on a tear<\/a>, up more than 15%.<\/p>\n According to Bank of America, Goldman\u2019s earnings per share are expected to decrease by 3% as a result of slower than expected buybacks. But more optimistically, a near-term negative for Bank of America\u2019s bullish investment thesis is partly underpinned by potential for an improving baseline going forward.<\/p>\n \u201cDespite this negative which is not thesis changing, we remain constructive on the stock,\u201d the analysts write. They maintain the stock as a buy with a price objective of $525. Downside risks include a An Oppenheimer analyst also still has Goldman listed as a buy, with a target of $517, while a Morningstar analyst prefers a hold recommendation with a $417 target price, according to S&P Capital IQ data. Fortune<\/em> reached out to both analysts for additional details but didn\u2019t hear back at time of publication.<\/p>\n According to a Federal Reserve statement<\/a>, all 31 banks tested, including Bank of America, JPMorgan Chase<\/a>, and Morgan Stanley<\/a>, absorbed total projected hypothetical losses of $685 billion and remained above the minimum capital requirements for common equity tier 1 (CET1) banks, or banks considered important to the global economy. Under stress, the aggregate CET1 capital ratio\u2014which cushions against losses\u2014is projected to decline from 12.7% to 9.9%. Though this is a greater loss than last year, the Fed says it\u2019s still within the range of recent tests.<\/p>\n It\u2019s perhaps a bit unnerving to see so many banks perform worse than a year ago, especially given a recent Wall Street Journal<\/em> report<\/a> that many of them were advocating to reduce capital requirements that currently start at 4.5% and increase based on bank size and performance during stress tests. According to the Journal<\/em>, Goldman spent \u201cmillions\u201d on an advocacy campaign, and the Financial Services Forum that represents the eight largest U.S. banks asked each of its members to contribute $2 million to another campaign.<\/p>\n The conditions of this year\u2019s test for a \u201csevere\u201d global recession included a 40% decline in commercial real estate prices, a substantial increase in office vacancies, and a 36% decline in house prices. The unemployment rate for the test rose nearly 6.5 percentage points to a peak of 10%, and economic output plummeted.<\/p>\n \u201cThis year\u2019s stress test shows that large banks have sufficient capital to withstand a highly stressful scenario and meet their minimum capital ratios,\u201d vice chair for supervision Michael Barr said in a statement. \u201cWhile the severity of this year\u2019s stress test is similar to last year\u2019s, the test resulted in higher losses because bank balance sheets are somewhat riskier and expenses are higher.\u201d<\/p>\n<\/div>\n
potentially weaker economy and geopolitical issues, with upside risks including stronger capital markets activity.<\/p>\nSubscribe to the Fortune Next to Lead newsletter to get weekly strategies on how to make it to the corner office. Sign up for free<\/a>.<\/div>\n