Equities net revenues for the third quarter were a record $3.1 billion, up 25% from the second quarter.
Equities trading net revenues rose 27% to $1.8 billion. The company’s derivatives business produced record revenues as equity market volatility increased dramatically during the quarter. Cash equities and principal strategies were down sequentially.
Equities commissions were a record $1.3 billion, up 23% over last quarter''s previous record.
The strength in this business reflects both higher customer activity levels during the third quarter, as well as the company’s increased share of those transaction flows.
Average daily value at risk in the third quarter was $139 million compared to $133 million for the second quarter.
The increase in VaR was primarily in the interest rates category reflecting continued higher volatility in the U.S. mortgage and credit markets.
Principal Investments third quarter net revenues were $211 million.
Corporate and real estate principal investing produced net revenues of $242 million in the quarter, a $230 million gain on ICBC investment was more than offset by a $261 million loss in the company’s investment in SMFG.
Asset management and securities services recorded third quarter net revenues of $2 billion, up 8% from the second quarter.
- Asset management produced net revenues of $1.2 billion, up 14% primarily based on record management fees.
- Assets under management increase to a record $796 billion at the end of the third quarter.
Total inflows during the quarter were $50 billion, including $19 billion across fixed income, equities and alternative investments and $31 billion into money markets as investors sought higher quality assets. These inflows were offset by $12 billion in market depreciation in equity and alternative investments.
Securities services produced net revenues of $762 million, up 1% from the second quarter.
This business benefited from robust customer activity levels and continued growth and balances.
Compensation and benefits expense in the third quarter was $5.9 billion, accrued at 48% of net revenues.
- Third quarter non-compensation expenses were $2.1 billion, excluding $100 million of expenses related to consolidated investments, a 17% increase from the second quarter. The sequential increase was largely driven by higher brokerage and clearing and professional fees.
- Headcount at the end of the quarter was approximately 29,900 up 13% year-to-date and 7% from the second quarter, reflecting in part the normal seasonal pattern of college and business school hires starting in the company’s associates program for the summer.
- The effective tax rate was 33.2% year-to-date and 33% for the third quarter.
During the quarter, the firm repurchased 11 million shares for approximately $2.5 billion.
Goldman Sachs currently has about 23 million shares remaining under the firm''s existing stock repurchase authorization.
Key Questions and Answers from third quarter fiscal 2007 earnings call conducted by Goldman Sachs Group, Inc. (GS: chart) on September 20th, 2007.
Guy Moszkowski (Merrill Lynch):
You alluded to $1.7 billion of leverage finance writedowns before fee impact, is that right?
David Viniar: That''s correct. That is after the impact.
Guy Moszkowski (Merrill Lynch):
I was wondering if you could give us the impact the gross impact before the fees?
