UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
January 19, 2011
THE GOLDMAN SACHS GROUP, INC.
(Exact name of registrant as specified in its charter)
| | | | | |
| Delaware | | No. 001-14965 | | No. 13-4019460 |
| | | | | |
(State or other jurisdiction
of incorporation) | | (Commission
File Number) | | (IRS Employer
Identification No.) |
| | | |
200 West Street
New York, New York | |
10282 |
| | | |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code:(212) 902-1000
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| | |
| o | | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| | |
| o | | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| | |
| o | | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| | |
| o | | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
TABLE OF CONTENTS
| | |
| Item 2.02 | | Results of Operations and Financial Condition. |
On January 19, 2011, The Goldman Sachs Group, Inc. (Group Inc. and, together with its consolidated subsidiaries, the firm) reported its earnings for its fourth quarter and year ended December 31, 2010. A copy of Group Inc.’s press release containing this information is being furnished as Exhibit 99.1 to this Report on Form 8-K and is incorporated herein by reference.
The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the Exchange Act) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of Group Inc. under the Securities Act of 1933 or the Exchange Act.
On January 19, 2011, Group Inc. reported net revenues of $39.16 billion and net earnings of $8.35 billion for the year ended December 31, 2010. Diluted earnings per common share were $13.18 compared with $22.13 for the year ended December 31, 2009. Return on average common shareholders’ equity (ROE) (1) was 11.5% for 2010.
Fourth quarter net revenues were $8.64 billion and net earnings were $2.39 billion. Diluted earnings per common share were $3.79 compared with $8.20 for the fourth quarter of 2009 and $2.98 for the third quarter of 2010. Annualized ROE (1) was 13.1% for the fourth quarter of 2010.
Excluding the impact of the $465 million related to the U.K. bank payroll tax, the $550 million related to the SEC settlement and the $305 million related to the impairment of the firm’s New York Stock Exchange (NYSE) Designated Market Maker (DMM) rights, diluted earnings per common share were $15.22 (2) and ROE was 13.1% (2) for the year ended December 31, 2010.
Net Revenues
Investment Banking
Full Year
Net revenues in Investment Banking were $4.81 billion for 2010, 3% lower than 2009. Net revenues in Financial Advisory were $2.06 billion, 9% higher than 2009, primarily reflecting an increase in client activity. Net revenues in the firm’s Underwriting business were $2.75 billion, 11% lower than 2009, reflecting lower net revenues in equity underwriting, principally due to a decline in client activity, as 2009 included significant capital-raising activity by financial institution clients. Net revenues in debt underwriting were essentially unchanged compared with 2009.
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Fourth Quarter
Net revenues in Investment Banking were $1.51 billion for the fourth quarter of 2010, 10% lower than the fourth quarter of 2009 and 30% higher than the third quarter of 2010. Net revenues in Financial Advisory were $628 million, 7% lower than the fourth quarter of 2009. Industry-wide completed mergers and acquisitions declined compared with the fourth quarter of 2009.Net revenues in the firm’s Underwriting business were $879 million, 12% lower than a strong fourth quarter of 2009, reflecting lower net revenues in both equity and debt underwriting, principally due to a decline in client activity.
The firm’s investment banking transaction backlog decreased compared with the end of the third quarter of 2010. (3)
Institutional Client Services
Full Year
Net revenues in Institutional Client Services were $21.80 billion for 2010, 33% lower than 2009.
Net revenues in Fixed Income, Currency and Commodities Client Execution were $13.71 billion for 2010, 37% lower than a particularly strong 2009. During 2010, Fixed Income, Currency and Commodities Client Execution operated in a challenging environment characterized by lower client activity levels, which reflected broad market concerns including European sovereign debt risk and uncertainty over regulatory reform, as well as tighter bid/offer spreads. The decrease in net revenues compared with 2009 primarily reflected significantly lower results in interest rate products, credit products, commodities and, to a lesser extent, currencies. These decreases were partially offset by higher net revenues in mortgages, as 2009 included approximately $1 billion of losses on commercial mortgage-related products.
Net revenues in Equities were $8.09 billion for 2010, 25% lower than 2009, primarily reflecting significantly lower net revenues in equities client execution, principally due to significantly lower results in derivatives and shares. Commissions and fees were also lower than 2009, primarily reflecting lower client activity levels. In addition, securities services net revenues were significantly lower compared with 2009, primarily reflecting tighter securities lending spreads, principally due to the impact of changes in the composition of customer balances, partially offset by the impact of higher average customer balances. During 2010, although equity markets were volatile during the first half of the year, equity prices generally improved and volatility levels declined in the second half of the year.
Fourth Quarter
Net revenues in Institutional Client Services were $3.64 billion for the fourth quarter of 2010, 31% lower than the fourth quarter of 2009 and 22% lower than the third quarter of 2010.
Net revenues in Fixed Income, Currency and Commodities Client Execution were $1.64 billion, 48% lower than the fourth quarter of 2009. During the fourth quarter of 2010, Fixed Income, Currency and Commodities Client Execution continued to operate in a challenging environment characterized by generally low client activity levels, which resulted in lower net revenues across the franchise compared with the fourth quarter of 2009.
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Net revenues in Equities were $2.00 billion, 5% lower than the fourth quarter of 2009. This decrease reflected lower net revenues in equities client execution, as well as slightly lower commissions and fees, as client activity levels remained low during the quarter. Securities services net revenues were also lower, primarily reflecting tighter securities lending spreads, principally due to the impact of changes in the composition of customer balances, partially offset by the impact of higher average customer balances. During the quarter, Equities operated in an environment characterized by lower volatility levels and an increase in global equity prices.
Investing & Lending
The firm’s investing and lending activities across various asset classes, primarily including debt securities and loans and equity securities, including private equity and real estate, are included in this segment. These activities include both direct investing and investing through funds, as well as lending activities.
Full Year
Investing & Lending recorded net revenues of $7.54 billion for 2010. These results primarily reflected a gain of $747 million from the firm’s investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC), a net gain of $2.69 billion from other equity securities and a net gain of $2.60 billion from debt securities and loans.
Fourth Quarter
Investing & Lending recorded net revenues of $1.99 billion for the fourth quarter of 2010. These results primarily reflected a gain of $55 million from the firm’s investment in the ordinary shares of ICBC, a net gain of $1.07 billion from other equity securities and a net gain of $537 million from debt securities and loans.
Investment Management
Full Year
Net revenues in Investment Management were $5.01 billion for 2010, 9% higher than 2009, primarily reflecting higher incentive fees across the firm’s alternative investment products. Management and other fees also increased, reflecting favorable changes in the mix of assets under management, as well as the impact of appreciation in the value of client assets. During the year, assets under management decreased 4% to $840 billion, primarily reflecting industry-wide outflows in money market assets.
Fourth Quarter
Net revenues in Investment Management were $1.51 billion for the fourth quarter of 2010, 14% higher than the fourth quarter of 2009 and 18% higher than the third quarter of 2010. The increase in net revenues compared with the fourth quarter of 2009 primarily reflected significantly higher incentive fees. During the quarter, assets under management increased 2% to $840 billion, due to appreciation in the value of client assets and inflows in money market assets.
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Expenses
Operating expenses were $26.27 billion for 2010, 4% higher than 2009.
Compensation and Benefits
Compensation and benefits expenses (including salaries, discretionary compensation, amortization of equity awards and other items such as benefits) were $15.38 billion for 2010, a 5% decline compared with $16.19 billion for 2009. The ratio of compensation and benefits to net revenues for 2010 was 39.3% (4) (which excludes the impact of the $465 million U.K. bank payroll tax).
U.K. Bank Payroll Tax
During the second quarter of 2010, the United Kingdom enacted legislation that imposed a non-deductible 50% tax on certain financial institutions in respect of discretionary bonuses in excess of £25,000 awarded under arrangements made between December 9, 2009 and April 5, 2010 to “relevant banking employees.” The estimated amount accrued in the second quarter of 2010 related to this tax was finalized during the fourth quarter at $465 million.
Non-Compensation Expenses
Full Year
Non-compensation expenses were $10.43 billion for 2010, 14% higher than 2009. This increase was primarily attributable to the impact of net provisions for litigation and regulatory proceedings of $682 million (including $550 million related to the SEC settlement), and an impairment of the firm’s NYSE DMM rights of $305 million, each during 2010. The remainder of the increase compared with 2009 generally reflected higher professional fees, market development expenses and occupancy expenses. These increases were partially offset by the impact of significantly higher real estate impairment charges during 2009 related to the firm’s consolidated entities held for investment purposes, as well as higher charitable contributions during 2009. During 2010, charitable contributions included $320 million to Goldman Sachs Gives. Compensation was reduced to fund this charitable contribution. The firm will ask its participating managing directors to make recommendations regarding potential charitable recipients for this contribution.
Fourth Quarter
Non-compensation expenses were $3.05 billion, 11% higher than the fourth quarter of 2009 and 35% higher than the third quarter of 2010. The increase compared with the fourth quarter of 2009 was primarily attributable to an impairment of the firm’s NYSE DMM rights of $305 million during the fourth quarter of 2010, as well as higher market development expenses and professional fees. These increases were partially offset by the impact of higher charitable contributions in the fourth quarter of 2009. During the fourth quarter of 2010, charitable contributions included $320 million to Goldman Sachs Gives. The fourth quarter of 2010 also included $19 million of net provisions for litigation and regulatory proceedings.
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Provision for Taxes
The effective income tax rate for 2010, excluding the impact of the $465 million U.K. bank payroll tax and the $550 million SEC settlement, substantially all of which is non-deductible, was 32.7% (5), essentially unchanged from 2009 and the first nine months of 2010. Including the impact of these amounts, the effective income tax rate was 35.2% for 2010.
Capital
As of December 31, 2010, total capital was $251.76 billion, consisting of $77.36 billion in total shareholders’ equity (common shareholders’ equity of $70.40 billion and preferred stock of $6.96 billion) and $174.40 billion in unsecured long-term borrowings. Book value per common share was $128.72, an increase of approximately 10% compared with the end of 2009 and approximately 1% compared with the end of the third quarter of 2010. Tangible book value per common share (6) was $118.63, an increase of approximately 9% compared with the end of 2009 and approximately 2% compared with the end of the third quarter of 2010. Book value and tangible book value per common share are based on common shares outstanding, including restricted stock units granted to employees with no future service requirements, of 546.9 million at period end.
In keeping with the firm’s long-standing policy of repurchasing shares to offset increases in share count over time resulting from employee share-based compensation, the firm repurchased 25.3 million shares of its common stock during 2010 at an average cost per share of $164.48, for a total cost of $4.16 billion, including 6.7 million shares during the fourth quarter at an average cost per share of $163.41, for a total cost of $1.09 billion.
Under the regulatory capital guidelines currently applicable to bank holding companies, the firm’s Tier 1 capital ratio under Basel 1 (7) was 16.0% as of December 31, 2010. The firm’s Tier 1 common ratio under Basel 1(8) was 13.3% as of December 31, 2010.
Other Balance Sheet and Liquidity Metrics
| • | | Total assets (9) were $911 billion as of December 31, 2010, essentially unchanged from the end of the third quarter of 2010 and up 7% from the end of 2009. |
| • | | Level 3 assets (9) were approximately $45 billion as of December 31, 2010 (down from $46 billion at the end of the third quarter of 2010 and the end of 2009) and represented 5% of total assets. |
| • | | Average global core excess liquidity (GCE) (10) was $170 billion for the fourth quarter of 2010, down from $175 billion for the third quarter of 2010. GCE averaged $168 billion for 2010, unchanged from the average for 2009, and was $175 billion as of December 31, 2010. |
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Dividends
Group Inc. declared a dividend of $0.35 per common share to be paid on March 30, 2011 to common shareholders of record on March 2, 2011. The firm also declared dividends of $239.58, $387.50, $255.56 and $255.56 per share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, respectively (represented by depositary shares, each representing a 1/1,000th interest in a share of preferred stock), to be paid on February 10, 2011 to preferred shareholders of record on January 26, 2011. In addition, the firm declared a dividend of $2,500 per share of Series G Preferred Stock to be paid on February 10, 2011 to preferred shareholders of record on January 26, 2011.
Cautionary Note Regarding Forward-Looking Statements
This Report on Form 8-K contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent only the firm’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the firm’s control. It is possible that the firm’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect the firm’s future results and financial condition, see “Risk Factors” in Part I, Item 1A of the firm’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the firm’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
Certain of the information regarding the firm’s capital ratios, risk-weighted assets, total assets, level 3 assets and global core excess liquidity consist of preliminary estimates. These estimates are forward-looking statements and are subject to change, possibly materially, as the firm completes its financial statements.
Statements about the firm’s investment banking transaction backlog also may constitute forward-looking statements. Such statements are subject to the risk that the terms of these transactions may be modified or that they may not be completed at all; therefore, the net revenues, if any, that the firm actually earns from these transactions may differ, possibly materially, from those currently expected. Important factors that could result in a modification of the terms of a transaction or a transaction not being completed include, in the case of underwriting transactions, a decline or weakness in general economic conditions, outbreak of hostilities, volatility in the securities markets generally or an adverse development with respect to the issuer of the securities and, in the case of financial advisory transactions, a decline in the securities markets, an inability to obtain adequate financing, an adverse development with respect to a party to the transaction or a failure to obtain a required regulatory approval. For a discussion of other important factors that could adversely affect the firm’s investment banking transactions, see “Risk Factors” in Part I, Item 1A of the firm’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the firm’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
SEGMENT NET REVENUES
(UNAUDITED)
$ in millions
| | | | | | | | | | | | | |
| | | Year Ended | | | % Change From | |
| | | December 31, | | | December 31, | | | December 31, | |
| | | 2010 | | | 2009 | | | 2009 | |
Investment Banking | | | | | | | | | | | | |
| Financial Advisory | | $ | 2,062 | | | $ | 1,897 | | | | 9 | % |
| | | | | | | | | | | | | |
| Equity underwriting | | | 1,462 | | | | 1,797 | | | | (19 | ) |
| Debt underwriting | | | 1,286 | | | | 1,290 | | | | — | |
| | | | | | | | | | |
| Total Underwriting | | | 2,748 | | | | 3,087 | | | | (11 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | |
| Total Investment Banking | | | 4,810 | | | | 4,984 | | | | (3 | ) |
| | | | | | | | | | |
| | | | | | | | | | | | | |
Institutional Client Services | | | | | | | | | | | | |
| Fixed Income, Currency and Commodities Client Execution | | | 13,707 | | | | 21,883 | | | | (37 | ) |
| | | | | | | | | | | | | |
| Equities client execution | | | 3,231 | | | | 5,237 | | | | (38 | ) |
| Commissions and fees | | | 3,426 | | | | 3,680 | | | | (7 | ) |
| Securities services | | | 1,432 | | | | 1,919 | | | | (25 | ) |
| | | | | | | | | | |
| Total Equities | | | 8,089 | | | | 10,836 | | | | (25 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | |
| Total Institutional Client Services | | | 21,796 | | | | 32,719 | | | | (33 | ) |
| | | | | | | | | | |
| | | | | | | | | | | | | |
Investing & Lending | | | | | | | | | | | | |
| ICBC | | | 747 | | | | 1,582 | | | | (53 | ) |
| Equity securities (excluding ICBC) | | | 2,692 | | | | (596 | ) | | | N.M. | |
| Debt securities and loans | | | 2,597 | | | | 1,045 | | | | 149 | |
Other(11) | | | 1,505 | | | | 832 | | | | 81 | |
| | | | | | | | | | | | | |
| | | | | | | | | | |
| Total Investing & Lending | | | 7,541 | | | | 2,863 | | | | 163 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
Investment Management | | | | | | | | | | | | |
| Management and other fees | | | 3,956 | | | | 3,860 | | | | 2 | |
| Incentive fees | | | 527 | | | | 180 | | | | 193 | |
| Transaction revenues | | | 531 | | | | 567 | | | | (6 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | |
| Total Investment Management | | | 5,014 | | | | 4,607 | | | | 9 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | |
| Total net revenues | | $ | 39,161 | | | $ | 45,173 | | | | (13 | ) |
| | | | | | | | | | |
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
SEGMENT NET REVENUES
(UNAUDITED)
$ in millions
| | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | % Change From | |
| | | December 31, | | | September 30, | | | December 31, | | | September 30, | | | December 31, | |
| | | 2010 | | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
Investment Banking | | | | | | | | | | | | | | | | | | | | |
| Financial Advisory | | $ | 628 | | | $ | 499 | | | $ | 677 | | | | 26 | % | | | (7 | )% |
| | | | | | | | | | | | | | | | | | | | | |
| Equity underwriting | | | 555 | | | | 310 | | | | 623 | | | | 79 | | | | (11 | ) |
| Debt underwriting | | | 324 | | | | 350 | | | | 380 | | | | (7 | ) | | | (15 | ) |
| | | | | | | | | | | | | | | | |
| Total Underwriting | | | 879 | | | | 660 | | | | 1,003 | | | | 33 | | | | (12 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total Investment Banking | | | 1,507 | | | | 1,159 | | | | 1,680 | | | | 30 | | | | (10 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Institutional Client Services | | | | | | | | | | | | | | | | | | | | |
| Fixed Income, Currency and Commodities Client Execution | | | 1,636 | | | | 2,687 | | | | 3,129 | | | | (39 | ) | | | (48 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Equities client execution | | | 772 | | | | 860 | | | | 835 | | | | (10 | ) | | | (8 | ) |
| Commissions and fees | | | 863 | | | | 779 | | | | 875 | | | | 11 | | | | (1 | ) |
| Securities services | | | 368 | | | | 343 | | | | 407 | | | | 7 | | | | (10 | ) |
| | | | | | | | | | | | | | | | |
| Total Equities | | | 2,003 | | | | 1,982 | | | | 2,117 | | | | 1 | | | | (5 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total Institutional Client Services | | | 3,639 | | | | 4,669 | | | | 5,246 | | | | (22 | ) | | | (31 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Investing & Lending | | | | | | | | | | | | | | | | | | | | |
| ICBC | | | 55 | | | | 9 | | | | 441 | | | | N.M. | | | | (88 | ) |
| Equity securities (excluding ICBC) | | | 1,066 | | | | 823 | | | | 153 | | | | 30 | | | | N.M. | |
| Debt securities and loans | | | 537 | | | | 508 | | | | 553 | | | | 6 | | | | (3 | ) |
Other(11) | | | 330 | | | | 457 | | | | 224 | | | | (28 | ) | | | 47 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total Investing & Lending | | | 1,988 | | | | 1,797 | | | | 1,371 | | | | 11 | | | | 45 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Investment Management | | | | | | | | | | | | | | | | | | | | |
| Management and other fees | | | 1,057 | | | | 1,001 | | | | 1,020 | | | | 6 | | | | 4 | |
| Incentive fees | | | 310 | | | | 158 | | | | 126 | | | | 96 | | | | 146 | |
| Transaction revenues | | | 141 | | | | 119 | | | | 172 | | | | 18 | | | | (18 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total Investment Management | | | 1,508 | | | | 1,278 | | | | 1,318 | | | | 18 | | | | 14 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total net revenues | | $ | 8,642 | | | $ | 8,903 | | | $ | 9,615 | | | | (3 | ) | | | (10 | ) |
| | | | | | | | | | | | | | | | |
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
In millions, except per share amounts
| | | | | | | | | | | | | |
| | | Year Ended | | | % Change From | |
| | | December 31, | | | December 31, | | | December 31, | |
| | | 2010 | | | 2009 | | | 2009 | |
Revenues | | | | | | | | | | | | |
| Investment banking | | $ | 4,810 | | | $ | 4,984 | | | | (3 | )% |
| Investment management | | | 4,669 | | | | 4,233 | | | | 10 | |
| Commissions and fees | | | 3,569 | | | | 3,840 | | | | (7 | ) |
| Market making | | | 13,678 | | | | 22,088 | | | | (38 | ) |
| Other principal transactions | | | 6,932 | | | | 2,621 | | | | 164 | |
| | | | | | | | | | |
| Total non-interest revenues | | | 33,658 | | | | 37,766 | | | | (11 | ) |
| | | | | | | | | | | | | |
| Interest income | | | 12,309 | | | | 13,907 | | | | (11 | ) |
| Interest expense | | | 6,806 | | | | 6,500 | | | | 5 | |
| | | | | | | | | | |
| Net interest income | | | 5,503 | | | | 7,407 | | | | (26 | ) |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Net revenues, including net interest income | | | 39,161 | | | | 45,173 | | | | (13 | ) |
| | | | | | | | | | |
| | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | |
| Compensation and benefits | | | 15,376 | | | | 16,193 | | | | (5 | ) |
| | | | | | | | | | | | | |
| U.K. bank payroll tax | | | 465 | | | | — | | | | N.M. | |
| | | | | | | | | | | | | |
| Brokerage, clearing, exchange and distribution fees | | | 2,281 | | | | 2,298 | | | | (1 | ) |
| Market development | | | 530 | | | | 342 | | | | 55 | |
| Communications and technology | | | 758 | | | | 709 | | | | 7 | |
| Depreciation and amortization | | | 1,889 | | | | 1,734 | | | | 9 | |
| Occupancy | | | 1,086 | | | | 950 | | | | 14 | |
| Professional fees | | | 927 | | | | 678 | | | | 37 | |
| Other expenses | | | 2,957 | | | | 2,440 | | | | 21 | |
| | | | | | | | | | |
| Total non-compensation expenses | | | 10,428 | | | | 9,151 | | | | 14 | |
| | | | | | | | | | | | | |
| | | | | | | | | | |
| Total operating expenses | | | 26,269 | | | | 25,344 | | | | 4 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Pre-tax earnings | | | 12,892 | | | | 19,829 | | | | (35 | ) |
| Provision for taxes | | | 4,538 | | | | 6,444 | | | | (30 | ) |
| | | | | | | | | | |
| Net earnings | | | 8,354 | | | | 13,385 | | | | (38 | ) |
| | | | | | | | | | | | | |
| Preferred stock dividends | | | 641 | | | | 1,193 | | | | (46 | ) |
| | | | | | | | | | |
| Net earnings applicable to common shareholders | | $ | 7,713 | | | $ | 12,192 | | | | (37 | ) |
| | | | | | | | | | |
| | | | | | | | | | | | | |
Earnings per common share | | | | | | | | | | | | |
Basic(12) | | $ | 14.15 | | | $ | 23.74 | | | | (40 | )% |
| Diluted | | | 13.18 | | | | 22.13 | | | | (40 | ) |
| | | | | | | | | | | | | |
Average common shares outstanding | | | | | | | | | | | | |
| Basic | | | 542.0 | | | | 512.3 | | | | 6 | |
| Diluted | | | 585.3 | | | | 550.9 | | | | 6 | |
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
In millions, except per share amounts and total staff
| | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | % Change From | |
| | | December 31, | | | September 30, | | | December 31, | | | September 30, | | | December 31, | |
| | | 2010 | | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
Revenues | | | | | | | | | | | | | | | | | | | | |
| Investment banking | | $ | 1,507 | | | $ | 1,159 | | | $ | 1,680 | | | | 30 | % | | | (10 | )% |
| Investment management | | | 1,415 | | | | 1,200 | | | | 1,214 | | | | 18 | | | | 17 | |
| Commissions and fees | | | 904 | | | | 807 | | | | 916 | | | | 12 | | | | (1 | ) |
| Market making | | | 1,594 | | | | 2,849 | | | | 2,784 | | | | (44 | ) | | | (43 | ) |
| Other principal transactions | | | 1,884 | | | | 1,760 | | | | 1,253 | | | | 7 | | | | 50 | |
| | | | | | | | | | | | | | | | |
| Total non-interest revenues | | | 7,304 | | | | 7,775 | | | | 7,847 | | | | (6 | ) | | | (7 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | 3,069 | | | | 2,937 | | | | 3,075 | | | | 4 | | | | — | |
| Interest expense | | | 1,731 | | | | 1,809 | | | | 1,307 | | | | (4 | ) | | | 32 | |
| | | | | | | | | | | | | | | | |
| Net interest income | | | 1,338 | | | | 1,128 | | | | 1,768 | | | | 19 | | | | (24 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Net revenues, including net interest income | | | 8,642 | | | | 8,903 | | | | 9,615 | | | | (3 | ) | | | (10 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | | | | | |
Compensation and benefits | | | 2,253 | | | | 3,828 | | | | (519 | ) | | | (41 | ) | | | N.M. | |
| | | | | | | | | | | | | | | | | | | | | |
| U.K. bank payroll tax | | | (135 | ) | | | — | | | | — | | | | N.M. | | | | N.M. | |
| | | | | | | | | | | | | | | | | | | | | |
| Brokerage, clearing, exchange and distribution fees | | | 578 | | | | 519 | | | | 608 | | | | 11 | | | | (5 | ) |
| Market development | | | 175 | | | | 129 | | | | 108 | | | | 36 | | | | 62 | |
| Communications and technology | | | 204 | | | | 192 | | | | 169 | | | | 6 | | | | 21 | |
| Depreciation and amortization | | | 725 | | | | 355 | | | | 392 | | | | 104 | | | | 85 | |
| Occupancy | | | 259 | | | | 297 | | | | 237 | | | | (13 | ) | | | 9 | |
| Professional fees | | | 262 | | | | 256 | | | | 215 | | | | 2 | | | | 22 | |
| Other expenses | | | 847 | | | | 516 | | | | 1,028 | | | | 64 | | | | (18 | ) |
| | | | | | | | | | | | | | | | |
| Total non-compensation expenses | | | 3,050 | | | | 2,264 | | | | 2,757 | | | | 35 | | | | 11 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total operating expenses | | | 5,168 | | | | 6,092 | | | | 2,238 | | | | (15 | ) | | | 131 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Pre-tax earnings | | | 3,474 | | | | 2,811 | | | | 7,377 | | | | 24 | | | | (53 | ) |
| Provision for taxes | | | 1,087 | | | | 913 | | | | 2,429 | | | | 19 | | | | (55 | ) |
| | | | | | | | | | | | | | | | |
| Net earnings | | | 2,387 | | | | 1,898 | | | | 4,948 | | | | 26 | | | | (52 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Preferred stock dividends | | | 160 | | | | 161 | | | | 161 | | | | (1 | ) | | | (1 | ) |
| | | | | | | | | | | | | | | | |
| Net earnings applicable to common shareholders | | $ | 2,227 | | | $ | 1,737 | | | $ | 4,787 | | | | 28 | | | | (53 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Earnings per common share | | | | | | | | | | | | | | | | | | | | |
Basic(12) | | $ | 4.10 | | | $ | 3.19 | | | $ | 9.01 | | | | 29 | % | | | (54 | )% |
| Diluted | | | 3.79 | | | | 2.98 | | | | 8.20 | | | | 27 | | | | (54 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Average common shares outstanding | | | | | | | | | | | | | | | | | | | | |
| Basic | | | 541.0 | | | | 541.2 | | | | 530.5 | | | | — | | | | 2 | |
| Diluted | | | 587.5 | | | | 582.7 | | | | 584.0 | | | | 1 | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | |
Selected Data | | | | | | | | | | | | | | | | | | | | |
Total staff at period end (13) | | | 35,700 | | | | 35,400 | | | | 32,500 | | | | 1 | | | | 10 | |
Total staff at period end including consolidated entities held for investment purposes(14) | | | 38,700 | | | | 38,900 | | | | 36,200 | | | | (1 | ) | | | 7 | |
- 11 -
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(UNAUDITED)
Average Daily VaR(15)
$ in millions
| | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Year Ended | |
| | | December 31, | | | September 30, | | | December 31, | | | December 31, | | | December 31, | |
| | | 2010 | | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
Risk Categories | | | | | | | | | | | | | | | | | | | | |
| Interest rates | | $ | 86 | | | $ | 88 | | | $ | 126 | | | $ | 93 | | | $ | 176 | |
| Equity prices | | | 65 | | | | 58 | | | | 89 | | | | 68 | | | | 66 | |
| Currency rates | | | 32 | | | | 23 | | | | 31 | | | | 32 | | | | 36 | |
| Commodity prices | | | 23 | | | | 29 | | | | 38 | | | | 33 | | | | 36 | |
Diversification effect(16) | | | (86 | ) | | | (77 | ) | | | (103 | ) | | | (92 | ) | | | (96 | ) |
| | | | | | | | | | | | | | | | |
| Total | | $ | 120 | | | $ | 121 | | | $ | 181 | | | $ | 134 | | | $ | 218 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Assets Under Management(17)
$ in billions |
| | | | | | | | | | | | | | | | | | | | | |
| | | As of | | | % Change From | |
| | | December 31, | | | September 30, | | | December 31, | | | September 30, | | | December 31, | |
| | | 2010 | | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
Asset Class | | | | | | | | | | | | | | | | | | | | |
| Alternative investments | | $ | 148 | | | $ | 148 | | | $ | 146 | | | | — | % | | | 1 | % |
| Equity | | | 144 | | | | 133 | | | | 146 | | | | 8 | | | | (1 | ) |
| Fixed income | | | 340 | | | | 343 | | | | 315 | | | | (1 | ) | | | 8 | |
| | | | | | | | | | | | | | | | |
| Total non-money market assets | | | 632 | | | | 624 | | | | 607 | | | | 1 | | | | 4 | |
| | | | | | | | | | | | | | | | | | | | | |
| Money markets | | | 208 | | | | 199 | | | | 264 | | | | 5 | | | | (21 | ) |
| | | | | | | | | | | | | | | | |
| Total assets under management | | $ | 840 | | | $ | 823 | | | $ | 871 | | | | 2 | | | | (4 | ) |
| | | | | | | | | | | | | | | | |
| |
| | | Three Months Ended | | | Year Ended | |
| | | December 31, | | | September 30, | | | December 31, | | | December 31, | | | December 31, | |
| | | 2010 | | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| Balance, beginning of period | | $ | 823 | | | $ | 802 | | | $ | 848 | | | $ | 871 | | | $ | 798 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net inflows / (outflows) | | | | | | | | | | | | | | | | | | | | |
| Alternative investments | | | (2 | ) | | | (1 | ) | | | (1 | ) | | | (1 | ) | | | (5 | ) |
| Equity | | | (2 | ) | | | (8 | ) | | | 1 | | | | (21 | ) | | | (2 | ) |
| Fixed income | | | — | | | | 2 | | | | 20 | | | | 7 | | | | 26 | |
| | | | | | | | | | | | | | | | |
| Total non-money market net inflows / (outflows) | | | (4 | ) | | | (7 | ) | | | 20 | | | | (15 | ) | | | 19 | |
| | | | | | | | | | | | | | | | | | | | | |
| Money markets | | | 9 | | | | (6 | ) | | | (8 | ) | | | (56 | ) | | | (22 | ) |
| | | | | | | | | | | | | | | | |
| Total net inflows / (outflows) | | | 5 | | | | (13 | ) | | | 12 | | | | (71 | ) | | | (3 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net market appreciation / (depreciation) | | | 12 | | | | 34 | | | | 11 | | | | 40 | | | | 76 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Balance, end of period | | $ | 840 | | | $ | 823 | | | $ | 871 | | | $ | 840 | | | $ | 871 | |
| | | | | | | | | | | | | | | | |
- 12 -
Footnotes
| (1) | | ROE is computed by dividing net earnings (or annualized net earnings for annualized ROE) applicable to common shareholders by average monthly common shareholders’ equity. The impact of the finalization of the U.K. bank payroll tax accrual and the NYSE DMM rights impairment in the fourth quarter of 2010 were not annualized in the calculation of annualized net earnings applicable to common shareholders for the fourth quarter of 2010, as these amounts have no impact on other quarters in the year. The following table sets forth the firm’s average common shareholders’ equity: |
| | | | | | | | | |
| | | Average for the | |
| | | Year Ended | | | Three Months Ended | |
| | | December 31, 2010 | | | December 31, 2010 | |
| | | (unaudited, $ in millions) | |
| Total shareholders’ equity | | $ | 74,257 | | | $ | 76,356 | |
| Preferred stock | | | (6,957 | ) | | | (6,957 | ) |
| | | | | | | |
| Common shareholders’ equity | | $ | 67,300 | | | $ | 69,399 | |
| | | | | | | |
| (2) | | Management believes that presenting the firm’s results excluding the impact of the U.K. bank payroll tax, the SEC settlement and the NYSE DMM rights impairment is meaningful, as excluding these items increases the comparability of period-to-period results. The following tables set forth the calculation of net earnings applicable to common shareholders, diluted earnings per common share and average common shareholders’ equity excluding the impact of these amounts: |
| | | | | |
| | | For the | |
| | | Year Ended | |
| | | December 31, 2010 | |
| | | (unaudited, in millions, | |
| | | except per share | |
| | | amounts) | |
| Net earnings applicable to common shareholders | | $ | 7,713 | |
| Impact of U.K. bank payroll tax | | | 465 | |
| Pre-tax impact of SEC settlement | | | 550 | |
| Tax impact of SEC settlement | | | (6 | ) |
| Pre-tax impact of NYSE DMM rights impairment | | | 305 | |
| Tax impact of NYSE DMM rights impairment | | | (118 | ) |
| | | | |
| Net earnings applicable to common shareholders, excluding the impact of U.K. bank payroll tax, SEC settlement and NYSE DMM rights impairment | | $ | 8,909 | |
| | | | |
| Divided by: average diluted common shares outstanding | | | 585.3 | |
| | | | |
| Diluted earnings per common share, excluding the impact of U.K. bank payroll tax, SEC settlement and NYSE DMM rights impairment | | $ | 15.22 | |
| | | | |
| | | | | |
| | | Average for the | |
| | | Year Ended | |
| | | December 31, 2010 | |
| | | (unaudited, $ in millions) | |
| Total shareholders’ equity | | $ | 74,257 | |
| Preferred stock | | | (6,957 | ) |
| | | | |
| Common shareholders’ equity | | | 67,300 | |
| Impact of U.K. bank payroll tax | | | 359 | |
| Impact of SEC settlement | | | 293 | |
| Impact of NYSE DMM rights impairment | | | 14 | |
| | | | |
| Common shareholders’ equity, excluding the impact of U.K. bank payroll tax, SEC settlement and NYSE DMM rights impairment | | $ | 67,966 | |
| | | | |
- 13 -
Footnotes (continued)
| (3) | | The firm’s investment banking transaction backlog represents an estimate of the firm’s future net revenues from investment banking transactions where management believes that future revenue realization is more likely than not. |
| (4) | | Management believes that presenting the firm’s ratio of compensation and benefits to net revenues excluding the impact of the U.K. bank payroll tax is meaningful, as excluding this item increases the comparability of period-to-period results. |
| | | | | |
| | | For the | |
| | | Year Ended | |
| | | December 31, 2010 | |
| | | (unaudited, $ in millions) | |
| Compensation and benefits (which excludes the impact of the $465 million U.K. bank payroll tax) | | $ | 15,376 | |
| Ratio of compensation and benefits to net revenues | | | 39.3 | % |
| Compensation and benefits, including the impact of the $465 million U.K. bank payroll tax | | $ | 15,841 | |
| Ratio of compensation and benefits to net revenues, including the impact of the $465 million U.K. bank payroll tax | | | 40.5 | % |
| (5) | | Management believes that presenting the firm’s effective income tax rate excluding the impact of the U.K. bank payroll tax and the SEC settlement, substantially all of which is non-deductible, is meaningful as excluding these items increases the comparability of period-to-period results. The following table sets forth the calculation of the effective income tax rate excluding the impact of these amounts: |
| | | | | | | | | | | | | |
| | | For the | |
| | | Year Ended December 31, 2010 | |
| | | Pre-tax | | | Provision | | | Effective income | |
| | | earnings | | | for taxes | | | tax rate | |
| | | (unaudited, $ in millions) | |
| As reported | | $ | 12,892 | | | $ | 4,538 | | | | 35.2 | % |
| Add back: | | | | | | | | | | | | |
| Impact of U.K. bank payroll tax | | | 465 | | | | — | | | | | |
| Impact of SEC settlement | | | 550 | | | | 6 | | | | | |
| | | | | | | | | | | |
| As adjusted | | $ | 13,907 | | | $ | 4,544 | | | | 32.7 | % |
| | | | | | | | | | | |
| (6) | | Tangible common shareholders’ equity equals total shareholders’ equity less preferred stock, goodwill and identifiable intangible assets. Tangible book value per common share is computed by dividing tangible common shareholders’ equity by the number of common shares outstanding, including restricted stock units granted to employees with no future service requirements. Management believes that tangible common shareholders’ equity and tangible book value per common share are meaningful because they are measures that the firm and investors use to assess capital adequacy. The following table sets forth the reconciliation of total shareholders’ equity to tangible common shareholders’ equity: |
| | | | | |
| | | As of | |
| | | December 31, 2010 | |
| | | (unaudited, $ in millions) | |
| Total shareholders’ equity | | $ | 77,356 | |
| Preferred stock | | | (6,957 | ) |
| | | | |
| Common shareholders’ equity | | | 70,399 | |
| Goodwill and identifiable intangible assets | | | (5,522 | ) |
| | | | |
| Tangible common shareholders’ equity | | $ | 64,877 | |
| | | | |
| (7) | | The Tier 1 capital ratio equals Tier 1 capital divided by risk-weighted assets. The firm’s risk-weighted assets under Basel 1 were approximately $444 billion as of December 31, 2010. This ratio represents a preliminary estimate as of the date of this Report onForm 8-K and may be revised in the firm’s Annual Report on Form 10-K for the year ended December 31, 2010. For a further discussion of the firm’s capital ratios, see “Equity Capital” in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the firm’s Quarterly Report on Form 10-Q for the period ended September 30, 2010. |
- 14 -
Footnotes (continued)
| (8) | | The Tier 1 common ratio equals Tier 1 common capital divided by risk-weighted assets. As of December 31, 2010, Tier 1 common capital was $59 billion, consisting of Tier 1 capital of $71 billion less preferred stock of $7 billion and junior subordinated debt issued to trusts of $5 billion. Management believes that the Tier 1 common ratio is meaningful because it is one of the measures that the firm and investors use to assess capital adequacy. This ratio represents a preliminary estimate as of the date of this Report on Form 8-K and may be revised in the firm’s Annual Report on Form 10-K for the year ended December 31, 2010. For a further discussion of the firm’s capital ratios, see “Equity Capital” in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the firm’s Quarterly Report on Form 10-Q for the period ended September 30, 2010. |
| (9) | | This amount represents a preliminary estimate as of the date of this Report on Form 8-K and may be revised in the firm’s Annual Report on Form 10-K for the year ended December 31, 2010. |
| (10) | | The firm’s global core excess represents a pool of excess liquidity consisting of unencumbered, highly liquid securities that may be sold or pledged to provide same-day liquidity, as well as certain overnight cash deposits. Beginning with the fourth quarter of 2010, the global core excess, which was previously reported at loan value, is now reported at fair value. The differences between the loan value and fair value were not material and prior periods are presented on a comparable basis. These amounts represent preliminary estimates as of the date of this Report on Form 8-K and may be revised in the firm’s Annual Report on Form 10-K for the year ended December 31, 2010. For a further discussion of the firm’s global core excess liquidity pool, see “Liquidity and Funding Risk” in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the firm’s Quarterly Report on Form 10-Q for the period ended September 30, 2010. |
| (11) | | Primarily includes results related to the firm’s consolidated entities held for investment purposes. |
| (12) | | Unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents are treated as a separate class of securities in calculating earnings per common share. The impact of applying this methodology was a reduction to basic earnings per common share of $0.08 and $0.06 for the years ended December 31, 2010 and December 31, 2009, respectively, and $0.02, $0.02 and $0.01 for the three months ended December 31, 2010, September 30, 2010 and December 31, 2009, respectively. |
| (13) | | Includes employees, consultants and temporary staff. |
| (14) | | Compensation and benefits and non-compensation expenses related to consolidated entities held for investment purposes are included in their respective line items in the consolidated statements of earnings. |
| (15) | | VaR is the potential loss in value of the firm’s trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. The modeling of the risk characteristics of the firm’s trading positions involves a number of assumptions and approximations. While management believes that these assumptions and approximations are reasonable, there is no standard methodology for estimating VaR, and different assumptions and/or approximations could produce materially different VaR estimates. For a further discussion of the calculation of VaR, see “Market Risk” in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the firm’s Quarterly Report on Form 10-Q for the period ended September 30, 2010. |
| (16) | | Equals the difference between total VaR and the sum of the VaRs for the four risk categories. This effect arises because the four market risk categories are not perfectly correlated. |
| (17) | | Assets under management do not include the firm’s investments in funds that it manages. |
- 15 -
| | |
| Item 9.01 | | Financial Statements and Exhibits. |
(d) Exhibits.
The following exhibit is being furnished as part of this Report on Form 8-K:
| | 99.1 | | Press release of Group Inc. dated January 19, 2011 containing financial information for its fourth quarter and year ended December 31, 2010. |
- 16 -
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| | | | | |
| | THE GOLDMAN SACHS GROUP, INC.
(Registrant)
| |
| Date: January 19, 2011 | By: | /s/ David A. Viniar | |
| | | Name: | David A. Viniar | |
| | | Title: | Chief Financial Officer | |
| |
- 17 -
