Banking on this bank

Unlike investors in most big U.S. banks, Goldman Sachs’ (NYSE: GS) shareholders will not be getting a dividend increase in 2018, nor will the bank increase its buyback.

The Federal Reserve’s annual “stress test” found that Goldman’s capital levels would barely remain over the minimally acceptable level during a severe global recession, and as a condition of their capital plans being conditionally approved, the bank’s capital return over the next 12 months will not increase.

However, it’s important not to let this temporary headwind steal the spotlight.

For starters, the reason for the poor stress test result in the first place is recent tax reform — which will ultimately be a positive catalyst for the bank. The big (but onetime) tax hit Goldman took, which reduced its capital levels, was largely due to the deemed repatriation of its foreign earnings. In addition, Goldman has a lot of good things going for it. The initial public offering (IPO) market is the most active it’s been in years, mergers and acquisitions activity is strong, and thanks to market volatility, Goldman’s trading revenue has been picking up. Plus, the company’s commercial banking ambitions are starting to produce a significant and rapidly growing revenue stream that has tremendous potential.

Indeed, in its first quarter 2018, Goldman grew revenue from its fixed income, currency and commodities trading by more than 20 percent year over year, compared to flat to negative performance by its biggest rivals.