This summary is based on the fourth quarter fiscal 2008 earnings call conducted by The Goldman Sachs Group Inc. (GS) on December 16, 2008.
Management:
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Chief Financial Officer: David Viniar
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Director, Investor Relations: Dane Holmes
Key Investors Issues
- Revenues were negative $1.6 billion, from $10.7 billion in the prior year.
- The firm realized a loss of $2.1 billion or $4.97 a share, down from a profit of $3.2 billion or $7.49 a share in 2007.
- In September, the Goldman Sachs Group became a bank holding company regulated by the Federal Reserve.
Full Year Highlights:
- Net revenues were $22.2 billion, down 52% from $46 billion in the prior year.
- Earnings came in at $2.3 billion or $4.47 a share, down 82% from $11.4 billion or $26.34 billion in 2007.
Fourth Quarter Highlights
Net revenues were negative $1.6 billion, from $10.7 billion in the prior year as the market environment had a negative impact on client activity and fee income for many of the businesses.
- The firm realized a loss of $2.1 billion or $4.97 a share, down from a profit of $3.2 billion or $7.49 a share in 2007 on the back of asset price declines, volatility and illiquidity.
- During the year, the MSCI was down 45%, with a 34% decline occurring during the fourth quarter alone and certain high-quality leveraged loans decreased in value by more than 25 points.
- Commercial real estate assets were under particular pressure, with the CMBX AA Index off by nearly 60%, though the VIX increased over 150%.
- In addition, rapid deleveraging by many market participants and continued supply/demand imbalances results in increasing illiquid markets across a broad spectrum of asset classes.
Total balance sheet declined by almost 20%, to $885 billion, and the Tier 1 ratio remained at 15.6%.
- The global access pool of liquidity averaged over $110 billion and the banking group continued to reduce concentrated risk positions, including leverage in real estate related loans.
- These asset classes represented 57% of tangible common equity at year end, down from 85% in the third quarter and 224% at year end 2007.
- Legacy leveraged loan exposure now stands at $7 billion, down from $52 billion at its peak last year and the commercial real estate portfolio declined by 25%, to $10.9 billion.
Compensation and benefits expense were negative $490 million as the firm eversed compensation previously accrued through the third quarter.
- Non-compensation expenses, excluding those related to consolidated investments, were up 9% sequentially, largely in other expenses primarily related to the reinsurance businesses.
- Headcount was approximately 30,000, down 1% versus year end 2007 and 8% from the third quarter.
- The Board declared a dividend of $0.467 per common share to be paid on 29 March 2009.
Segment Highlights:
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Investment Banking produced net revenues of $1 billion, down 20% from the third quarter as the backlog declined during the period.
- Advisory revenues were $574 million, down 7% from the third quarter and Goldman Sachs once again ranked first in announced M&A globally for calendar 2008 through November.
- The firm advised on a number of important transactions that closed in the period, including Anheuser-Busch''s $60.4 billion sale to InBev, Wrigley''s $23.2 billion sale to Mars, and APP Pharmaceuticals'' $5.6 billion sale.
- It is also adviser on a number of significant announced transactions, including Wachovia''s $15.1 billion sale to Wells Fargo, Altria''s $11.6 billion acquisition of UST, and Dresdner Bank''s 5.6 billion euro sale to Commerce Bank.
Underwriting net revenues were $460 million, down 32% sequentially and equity underwriting revenues of $273 million were down 7% from the third quarter, reflecting the continued weakness in global equity markets.
- Debt underwriting declined 51% to $187 million given significant credit market dislocation and weak new issuance markets during the quarter.
- Underwriting transactions participated in include GE''s $12.2 billion common share offering, Equilab''s $1.9 billion common share offering, and SunGard''s $1 billion combination term loan and senior note financing.
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Trading and Principal Investments reported negative revenues of $4.4 billion reflecting significant asset price declines across credit and principal investing businesses. - FICC net revenues were negative $3.4 billion, principally driven by losses from investments, including corporate debt and private and public equities and trading and credit products.
- These results were adversely impacted by weaknesses across the broader credit markets, reflecting deteriorating asset values, reduced market liquidity, and dislocation between cash and related derivative instruments as well as indices in the underlying single names.
- Credit also included $1.3 billion in losses, $1 billion net of hedges, associated with the legacy leveraged loan positions.
Mortgage revenues declined sequentially due to continued asset price weakness, particularly in the commercial real estate portfolio, where the firm generated net losses of $700 million.
- The franchise businesses generated solid performance despite the challenging market conditions with revenues from the rates business up sequentially due to increased volatility and strong customer flow.
- Currencies and commodities continued to be solid, with results including $700 million in gains from the impact of the wider credit spreads on certain long-term debt, largely in FICC.
- Equities net revenues were $2.6 billion, up 69% sequentially as these rebounded from a weak third quarter due to higher customer volumes across cash trading and derivatives businesses.
- Equities commissions were up 9% sequentially, to $1.3 billion, reflecting robust client trading activity and growing market share.
- Average daily value at risk was $197 million compared to $181 million in the prior period driven by greater volatility across mortgage and credit products.
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Principal Investments produced net revenues of negative $3.6 billion as the corporate principal investing portfolio generated losses of $2 billion due to the significant decline in global equity markets.
- The investment in ICBC produced a loss of $631 million and the real estate principal investing portfolio generated $961 million in losses due to valuation adjustments that reflect higher cap rates and weaker fundamentals in commercial real estate.
