Goldman faces threat to crucial profit source after stress test

New York

CONCERNS have emerged that Goldman Sachs - long the leader on Wall Street - may lose an important engine of profitability.

On the Federal Reserve stress tests last week, Goldman performed poorly compared with other big banks. Now analysts and investors are worried that the bank could be barred by regulators from buying back its own stock or increasing dividends.

Goldman has used dividends and share buybacks to appeal to investors at a time when other elements of the bank's business have faced challenges. When companies buy shares of their own stock on the open market, it generally increases the amount of profits attributed to every share, an important metric for investors.

Several analysts have released research questioning whether the Fed would allow Goldman to continue its buyback programmes given the results of the stress tests. Brian Kleinhanzl, an analyst with Keefe, Bruyette & Woods, estimated that if Goldman is unable to repurchase shares, it could earn 42 US cents a share less than expected this year, and US$1.78 a share less than expect…