Goldman Sachs Could stress test results lead to significant capital raising?

Goldman Sachs - Could stress test results lead to significant capital raising?

* Stress test results in US, as well as capital restructuring events, remain primary focus in short term. Results expected by end April.

* Default risk at most banks low as liquidity support ongoing, but additional debt exchanges/tenders likely globally.

* Asset quality and profitability remain major concerns.

* Preferred dividend cuts and preferred/debt exchanges likely as means of improving tangible equity levels.

* Government intervention a concern for investors in intermediate term.

* Specialty finance is still under pressure - tight liquidity and viability of business model persist.

* Valuation: Short term: volatility to remain high, especially in Tier 1 securities, but cash could outperform CDS if exchanges/tenders continue. Longer term: recovery may start in 2H, especially if equity capital raises are successful. Negative basis could reverse in banks; buy new supply of non-guaranteed paper; specialty finance need to restructure funding models.