Goldman Sachs’ attempt to spend some of its $170 billion in excess capital on loans, real estate and other distressed assets is being hampered by a prolonged rebound in risk appetite that has lifted prices on many would-be bargains.
Goldman’s financial strength in the wake of the crisis has helped the bank stockpile “excess liquidity,” or cash deposits and securities it could sell or pledge quickly, but the assets have weighed down its returns.
Undaunted, Goldman executives have said they would continue to prioritize these deals above accelerating stock buy-back plans or raising dividends.
David Viniar, Goldman’s finance chief, told analysts last month: “Our number one choice will be to find opportunities to use the capital profitably, and if not we would probably give some more back.”
The strategy stands in contrast to those pursued by many of Goldman’s rivals, which are awaiting US regulators’ approval to return their excess capital to shareholders.
Goldman bought more than $8 billion in mortgage-backed securities in December from State Street , a US trust bank, people familiar with the matter said. Similar deals, Goldman executives lament, have been elusive.
If asset prices remain at current levels, Goldman has said it could change gear and begin to sell portfolios.
Goldman has long been one of Wall Street’s most active investors in distressed assets—from bankrupt golf courses in Japan to empty office buildings in China—using its vast network of contacts to help identify troubled assets and snap them up at attractive prices.
But the rapid return of risk appetite and the availability of relatively cheap credit has left a number of distressed assets funds bereft of opportunities.