This summary is based on the third quarter fiscal 2008 earnings call conducted by Goldman Sachs Group Inc. (GS) on September 16, 2008.
Management:
CFO: David Viniar
IR: Danes Holmes
Key Investor Issues:
- Q3 EPS were $1.81 versus $6.13 in Q3 of 2007 and $4.58 in Q2 of 2008.
- The book value per common share increased 2% during the quarter to $99.30.
- The total assets were $1.08 trillion as of August 29, 2008.
Third Quarter Fiscal 2008 Revenue Analysis for Business Segments:
Investment Banking:
- The net revenues were $1.29 billion, a decrease of 40% from Q3 of 2007.
- The management advised that this also represented a decline of 23% versus Q2 of 2008.
- The net revenues in
Financial Advisory were $619 million, 56% lower than the third quarter last year.
- The decrease was a result of the industry-wide slump in completed mergers and acquisitions.
- The bank is also advisor on a number of significant announced transactions.
- The include Anheuser-Busch’s $59.6 billion sale to InBev, Alltel’s $28.1 billion sale to Verizon Wireless and APP Pharmaceuticals’ $5.6 billion sale.
- Third quarter net revenues in the
Underwriting Business were $675 million, 8% lower the year ago quarter.
- This was due to lower net revenues in equity underwriting reflecting a dip in industry-wide initial public offerings.
- The net revenues for the quarter in debt underwriting were essentially unchanged from Q3 of 2007.
- The management reported that the firm’s investment banking backlog increased during the quarter.
Trading and Principal Investments:
- The net revenues were $2.70 billion during the quarter.
- This represents a decrease of 67% compared with the year ago quarter and a dip of 52% from the second quarter of 2008.
- The quarterly net revenues in
Fixed Income, Currency and Commodities (FICC) were $1.60 billion, 67% lower than the year ago quarter.
- The decrease was due to weak results in credit products and mortgages which were adversely affected by broad-based declines in asset values.
- The credit products included very weak results from investments and a loss of about $275 million (including hedges) related to non-investment-grade credit origination activities.
- Mortgages included net losses of approximately $500 million on residential mortgage loans and securities and about $325 million on commercial mortgage loans and securities.
- Commodities produced strong results, which were higher compared with the third quarter of 2007.
- The net revenues in
Currencies and Interest Rate products were also strong, although essentially unchanged from the third quarter of 2007.
- The management advised that FICC operated in an environment characterized by wider mortgage and corporate credit spreads, volatile markets and lower levels of client activity.
- The quarterly net revenues in
Equities were $1.56 billion, 50% lower than the third quarter of 2007.
- Equities operated in a challenging environment characterized by a significant decline in global equity prices, deleveraging by clients and generally lower client activity levels towards the end of the quarter.
- The decline in net revenues reflected very weak results in principal strategies.
- Additionally, net revenues in derivatives were significantly lower than a particularly strong Q3 of 2007.
- Commissions were strong, but lower compared with the year ago quarter.
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Principal Investments recorded a net loss of $453 million during the quarter.
- The results included losses from corporate and real estate principal investments partially offset by a $106 million gain related to the firm’s investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC).
Asset Management and Securities Services:
-The net revenues were $2.05 billion, 4% higher than Q3 of 2007 and 5% lower than Q2 of 2008.
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Asset Management net revenues were $1.13 billion, 6% lower than the third quarter last year reflecting lower management and other fees, as well as lower incentive fees.
- The decrease in management and other fees primarily reflected the impact of one fewer week in the firm’s fiscal third quarter of 2008 versus the year ago quarter.
- During the quarter, assets under management decreased $32 billion to $863 billion due to $25 billion of market depreciation, primarily in equity assets and $7 billion of net outflows.
- The net outflows reflected outflows in equity and money market assets, partially offset by inflows in alternative investments and fixed income securities.
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Securities Services net revenues were $916 million, 20% higher than Q3 of 2007.
- The firm’s prime brokerage business continued to generate strong results and customer balances were higher versus Q3 of 2007.
The quarterly operating expenses were $5.08 billion, 37% lower than the third quarter of 2007 and 23% lower than Q2 of 2008.
