This summary is based on the second quarter fiscal 2008 earnings call conducted by Goldman Sachs Inc. (GS: chart) on June 17, 2008.
Management:
CFO: David Viniar
Head of IR: Dan Holmes
Key Investor Issues:
- Q2 EPS were $4.58 versus $4.93 in Q2 of 2007.
- The book value per share rose 5% to $97.49 during the quarter.
- The firm repurchased 1.2 million shares at an average price of $173.85 during Q2.
Second-Quarter Financial Highlights:
The annualized return on average tangible common shareholders’ equity was 23.5% during the quarter.
- The annualized return on average tangible common shareholders’ equity was 20.2% for the first half of 2008.
- The annualized return on average common shareholders’ equity was 20.4% for Q2 and 17.6% for the first half of 2008.
- The company ranked first in worldwide announced M&As for the calendar year-to-date.
- The equity underwriting produced quarterly net revenues of $616 million, being the second best quarter and highest in eight years.
- The security services produced record quarterly net revenues of $985 million. This represents an increase of 29% than the previous period.
Business Segment Performance Analysis
Investment Banking
- The net revenues were $1.69 billion, 2% lower than Q2 of 2007 and 44% higher than Q1 of 2008.
- The net revenues in financial advisory were $800 million, 13% higher than the Q2 of 2007 reflecting strong client activity.
- The net revenues in the firm’s underwriting business were $885 million, being 13% lower than the second quarter of 2007.
- The decrease was due to significantly lower net revenues in debt underwriting partially offset by significantly higher net revenues in equity underwriting.
- The decline in debt underwriting was mainly due to the decrease in leveraged finance activity as market conditions remained challenging.
- The increase in equity underwriting reflected strong client activity.
- The firm’s investment banking transaction backlog decreased during the quarter.
Trading and Principal Investments
- The net revenues in the Trading and Principal Investments were $5.59 billion.
- This represents a decrease of 16% versus the year ago quarter and an increase of 9% versus Q1 of 2008.
- The net revenues in Fixed Income, Currency and Commodities (FICC) were $2.38 billion.
- This was 29% lower than Q2 of 2007 due to significantly lower results in credit products.
- The credit products included a loss of about $775 million (inclusive of an estimate loss of $500 million from hedges) related to non-investment-grade credit origination activities and lower results from investments compared with the second quarter of 2007.
- The decrease in credit products was partially offset by higher net revenues in mortgages which improved from a tough Q2 of 2007 as well as higher net revenues in interest rate products, commodities and currencies.
- During the quarter, FICC operated in an environment characterized by solid client activity, tighter corporate credit spreads and volatile markets.
- The net revenues in Equities were $2.49 billion, essentially unchanged from Q2 of 2007.
- The significantly higher net revenues in client franchise businesses were offset by significantly lower net revenues in principal strategies.
- The commission volumes were strong and were higher versus Q2 of 2007.
- During the quarter, Equities operated in an environment generally characterized by strong client activity and higher equity process as well as continued levels of volatility.
- Principal Investments posted net revenues of $725 million during the quarter. The results reflect gains from corporate principal investments as well as a $214 million gain related to the firm’s investment in the ordinary shares of Industrial and Commercial Bank of China (ICBC).
Asset Management and Securities Services
- The net revenues in Asset Management and Securities Services were $2.15 billion.
- This was 18% higher than second quarter of 2007 and 5% higher than the first quarter of 2008.
