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Excluding a one-time preferred dividend of $426 million related to the repurchase of the firm's TARP preferred stock, diluted earnings per common share were $5.71 (2) for the second quarter of 2009 and annualized ROE was 23.8% (2) for the second quarter of 2009 and 19.2% (2) for the first half of 2009.
Business Highlights
-- Goldman Sachs ranked first in worldwide announced mergers and acquisitions for the calendar year-to-date. (3)
-- Equity underwriting produced record quarterly net revenues of $736 million, surpassing the previous record set in the second quarter of 2000.
-- Fixed Income, Currency and Commodities (FICC) generated record quarterly net revenues of $6.80 billion, reflecting strength across most businesses, including record results in credit products.
-- Equities generated record quarterly net revenues of $3.18 billion, reflecting strong results across the client franchise businesses.
-- On June 17, 2009, the firm repurchased the preferred stock that was issued to the U.S. Treasury pursuant to its TARP Capital Purchase Program. In addition, the firm completed a public offering of common stock for proceeds of $5.75 billion during the quarter.
-- Book value per common share increased approximately 8% during the quarter to $106.41 and tangible book value per common share (4) increased approximately 10% during the quarter to $96.94.
______________
"While markets remain fragile and we recognize the challenges the broader economy faces, our second quarter results reflected the combination of improving financial market conditions and a deep and diverse client franchise," said Lloyd C. Blankfein, Chairman and Chief Executive Officer. "Our role as an intermediary focused on making markets for buyers and sellers helped drive our performance. We were also active as an underwriter of many significant debt and equity offerings for clients."
Net Revenues
Investment Banking
Net revenues in Investment Banking were $1.44 billion, 15% lower than the second quarter of 2008 and 75% higher than the first quarter of 2009.
Net revenues in Financial Advisory were $368 million, 54% lower than the second quarter of 2008, primarily reflecting a significant decline in industry-wide completed mergers and acquisitions. Net revenues in the firm's Underwriting business were $1.07 billion, 21% higher than the second quarter of 2008, due to significantly higher net revenues in equity underwriting, as well as higher net revenues in debt underwriting. The increase in equity underwriting reflected very strong client activity. The increase in debt underwriting primarily reflected higher net revenues from investment-grade and municipal activity. The firm's investment banking transaction backlog decreased during the quarter. (5)
Trading and Principal Investments
Net revenues in Trading and Principal Investments were $10.78 billion, 93% higher than the second quarter of 2008 and 51% higher than the first quarter of 2009.
Net revenues in FICC were $6.80 billion, significantly higher than the second quarter of 2008. These results reflected particularly strong performances in credit products, interest rate products and currencies, reflecting strength in the client franchise. In addition, net revenues in both mortgages and commodities were higher compared with the second quarter of 2008. Results in mortgages included a loss of approximately $700 million on commercial mortgage loans. During the quarter, FICC operated in an environment characterized by strong client-driven activity, particularly in more liquid products, favorable market opportunities and tighter corporate credit spreads.
Net revenues in Equities were $3.18 billion, 28% higher than the second quarter of 2008, reflecting significantly higher net revenues in derivatives and, to a lesser extent, principal strategies. In addition, net revenues in shares were solid, but essentially unchanged compared with the second quarter of 2008. Commissions declined compared with the second quarter of 2008. During the quarter, Equities operated in an environment characterized by solid client-driven activity, favorable market opportunities, a significant increase in global equity prices and a decline in volatility levels.
Principal Investments recorded net revenues of $811 million for the second quarter of 2009. These results included a gain of $948 million related to the firm's investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC), a gain of $343 million from corporate principal investments and a loss of $499 million from real estate principal investments.
Asset Management and Securities Services
Net revenues in Asset Management and Securities Services were $1.54 billion, 28% lower than the second quarter of 2008 and 6% higher than the first quarter of 2009.
Asset Management net revenues were $922 million, 21% lower than the second quarter of 2008, reflecting lower assets under management, principally due to market depreciation since the end of the second quarter of 2008. During the second quarter of 2009, assets under management increased $48 billion to $819 billion (6), due to $42 billion of market appreciation, primarily in equity and fixed income assets, and $6 billion of net inflows.
Securities Services net revenues were $615 million, 38% lower than the second quarter of 2008. The decrease in net revenues primarily reflected the impact of lower customer balances compared with the second quarter of 2008.
Expenses
Operating expenses were $8.73 billion, 33% higher than the second quarter of 2008 and 28% higher than the first quarter of 2009.
Compensation and Benefits
Compensation and benefits expenses (including salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as payroll taxes, severance costs and benefits) were $6.65 billion, which was higher than the second quarter of 2008, primarily due to higher net revenues. The ratio of compensation and benefits to net revenues was 49.0% for the first half of 2009. Total staff decreased 1% during the quarter.
Non-Compensation Expenses
Non-compensation expenses, excluding consolidated entities held for investment purposes (7), were $1.80 billion, 8% lower than the second quarter of 2008 and 11% higher than the first quarter of 2009. The decrease compared with the second quarter of 2008 was attributable to lower brokerage, clearing, exchange and distribution fees, principally reflecting lower transaction volumes in Equities. In addition, non-compensation expenses during the second quarter of 2009 were generally lower than the second quarter of 2008 principally due to the impact of reduced staff levels and the effect of expense reduction initiatives. These decreases were partially offset by the impact of higher FDIC fees on bank deposits, including the impact of a special assessment of approximately $50 million, and net provisions for litigation and regulatory proceedings of $25 million. The increase in non-compensation expenses related to consolidated entities held for investment purposes reflected real estate impairment charges of approximately $170 million during the second quarter of 2009. Including consolidated investment entities held for investment purposes, non-compensation expenses were $2.08 billion, essentially unchanged from the second quarter of 2008 and the first quarter of 2009.
Provision for Taxes
The effective income tax rate for the first half of 2009 was 31.5%, up slightly from 31.0% for the first quarter of 2009.
Capital
As of June 26, 2009, total capital was $254.05 billion, consisting of $62.81 billion in total shareholders' equity (common shareholders' equity of $55.86 billion and preferred stock of $6.96 billion) and $191.24 billion in unsecured long-term borrowings. Book value per common share was $106.41 and tangible book value per common share (4) was $96.94, an increase of approximately 8% and 10%, respectively, during the quarter. 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 524.9 million at period end.
During the quarter, The Goldman Sachs Group, Inc. (Group Inc.) completed a public offering of 46.7 million common shares at $123.00 per share for total proceeds of $5.75 billion.
On June 17, 2009, Group Inc. repurchased from the U.S. Treasury the 10.0 million shares of the firm's Fixed Rate Cumulative Perpetual Preferred Stock, Series H, that were issued to the U.S. Treasury pursuant to the U.S. Treasury's TARP Capital Purchase Program. The aggregate purchase price paid by Group Inc. to the U.S. Treasury for the Preferred Stock was $10.04 billion (including accrued dividends). The repurchase included a one-time preferred dividend of $426 million, which is included in our results for the second quarter of 2009.
Under the regulatory capital guidelines currently applicable to bank holding companies, the firm's Tier 1 capital ratio under Basel I (8) was 13.8% as of June 26, 2009, up from 13.7% as of March 27, 2009. Under the capital guidelines applicable to the firm when it was regulated by the SEC as a Consolidated Supervised Entity, the firm's Tier 1 capital ratio under Basel II (8) was 16.1% as of June 26, 2009, up from 16.0% as of March 27, 2009.
Other Balance Sheet and Liquidity Metrics
-- Total assets (9) were $890 billion as of June 26, 2009, down 4% from March 27, 2009.
-- Level 3 assets (10) were approximately $54 billion as of June 26, 2009 (down from $59 billion as of March 27, 2009) and represented 6.1% of total assets.
-- Average global core excess (11) liquidity was $170.95 billion for the second quarter of 2009, up from $163.74 billion for the first quarter of 2009.
Dividends
The Board of Directors of Group Inc. (the Board) declared a dividend of $0.35 per common share to be paid on September 24, 2009 to common shareholders of record on August 25, 2009. The Board also declared dividends of $236.98, $387.50, $252.78 and $252.78 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 August 10, 2009 to preferred shareholders of record on July 26, 2009. In addition, the Board declared a dividend of $2,500 per share of Series G Preferred Stock to be paid on August 10, 2009 to preferred shareholders of record on July 26, 2009.
______________
The Goldman Sachs Group, Inc. is a leading global financial services firm providing investment banking, securities and investment management services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.
Cautionary Note Regarding Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These 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 November 28, 2008 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 November 28, 2008.
Certain of the information regarding the firm's Tier 1 capital ratios, risk-weighted assets, total assets, level 3 assets and average 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 quarterly 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 continued 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 November 28, 2008 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 November 28, 2008.
Conference Call
A conference call to discuss the firm's results, outlook and related matters will be held at 11:00 am (ET). The call will be open to the public. Members of the public who would like to listen to the conference call should dial 1-888-281-7154 (U.S. domestic) or 1-706-679-5627 (international). The number should be dialed at least 10 minutes prior to the start of the conference call. The conference call will also be accessible as an audio webcast through the Investor Relations section of the firm's web site, www.gs.com/shareholders. There is no charge to access the call. For those unable to listen to the live broadcast, a replay will be available on the firm's web site or by dialing 1-800-642-1687 (U.S. domestic) or 1-706-645-9291 (international) passcode number 17367491, beginning approximately two hours after the event. Please direct any questions regarding obtaining access to the conference call to Goldman Sachs Investor Relations, via e-mail, at gs-investor-relations@gs.com.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES SEGMENT NET REVENUES (UNAUDITED) $ in millions
Three Months Ended % Change From
June 26, March 27, May 30, March 27, May 30,
2009 2009 2008 2009 2008
Investment Banking
Financial Advisory $ 368 $ 527 $ 800 (30 ) % (54 ) %
Equity underwriting 736 48 616 N.M. 19
Debt underwriting 336 248 269 35 25
Total Underwriting 1,072 296 885 N.M. 21
Total Investment Banking 1,440 823 1,685 75 (15 )
Trading and Principal Investments
FICC 6,795 6,557 2,379 4 186
Equities trading 2,157 1,027 1,253 110 72
Equities commissions 1,021 974 1,234 5 (17 )
Total Equities 3,178 2,001 2,487 59 28
ICBC 948 (151 ) 214 N.M. N.M.
Other corporate and real estate gains and losses (156 ) (1,261 ) 476 N.M. N.M.
Overrides 19 4 35 N.M. (46 )
Total Principal Investments 811 (1,408 ) 725 N.M. 12
Total Trading and Principal Investments 10,784 7,150 5,591 51 93
Asset Management and Securities Services
Management and other fees 918 931 1,153 (1 ) (20 )
Incentive fees 4 18 8 (78 ) (50 )
Total Asset Management 922 949 1,161 (3 ) (21 )
Securities Services 615 503 985 22 (38 )
Total Asset Management and Securities Services 1,537 1,452 2,146 6 (28 )
Total net revenues $ 13,761 $ 9,425 $ 9,422 46 46
Six Months Ended % Change
From
June 26, May 30, May 30,
2009 2008 2008
Investment Banking
Financial Advisory $ 895 $ 1,463 (39 ) %
Equity underwriting 784 788 (1 )
Debt underwriting 584 606 (4 )
Total Underwriting 1,368 1,394 (2 )
Total Investment Banking 2,263 2,857 (21 )
Trading and Principal Investments
FICC 13,352 5,521 142
Equities trading 3,184 2,529 26
Equities commissions 1,995 2,472 (19 )
Total Equities 5,179 5,001 4
ICBC 797 79 N.M.
Other corporate and real estate gains and losses (1,417 ) 66 N.M.
Overrides 23 48 (52 )
Total Principal Investments (597 ) 193 N.M.
Total Trading and Principal Investments 17,934 10,715 67
Asset Management and Securities Services
Management and other fees 1,849 2,276 (19 )
Incentive fees 22 202 (89 )
Total Asset Management 1,871 2,478 (24 )
Securities Services 1,118 1,707 (35 )
Total Asset Management and Securities Services 2,989 4,185 (29 )
Total net revenues $ 23,186 $ 17,757 31
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
June 26, March 27, May 30, March 27, May 30,
2009 2009 2008 2009 2008
Revenues
Investment banking $ 1,440 $ 823 $ 1,685 75 % (15 ) %
Trading and principal investments 9,322 5,706 5,239 63 78
Asset management and securities services 957 989 1,221 (3 ) (22 )
Total non-interest revenues 11,719 7,518 8,145 56 44
Interest income 3,470 4,362 9,498 (20 ) (63 )
Interest expense 1,428 2,455 8,221 (42 ) (83 )
Net interest income 2,042 1,907 1,277 7 60
Net revenues, including net interest income 13,761 9,425 9,422 46 46
Operating expenses
Compensation and benefits 6,649 4,712 4,522 41 47
Brokerage, clearing, exchange and distribution fees 574 536 741 7 (23 )
Market development 82 68 126 21 (35 )
Communications and technology 173 173 192 - (10 )
Depreciation and amortization (12) 426 549 220 (22 ) 94
Occupancy 242 241 234 - 3
Professional fees 145 135 185 7 (22 )
Other expenses 441 382 370 15 19
Total non-compensation expenses 2,083 2,084 2,068 - 1
Total operating expenses 8,732 6,796 6,590 28 33
Pre-tax earnings 5,029 2,629 2,832 91 78
Provision for taxes 1,594 815 745 96 114
Net earnings 3,435 1,814 2,087 89 65
Preferred stock dividends 717 155 36 N.M. N.M.
Net earnings applicable to common shareholders $ 2,718 $ 1,659 $ 2,051 64 33
Earnings per common share
Basic (13) $ 5.27 $ 3.48 $ 4.80 51 % 10 %
Diluted 4.93 3.39 4.58 45 8
Average common shares outstanding
Basic 514.1 477.4 427.5 8 20
Diluted 551.0 489.2 447.4 13 23
Selected Data
Total staff at period end (14) 29,400 29,800 35,000 (1 ) (16 )
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) In millions, except per share amounts
Six Months Ended % Change
From
June 26, May 30, May 30,
2009 2008 2008
Revenues
Investment banking $ 2,263 $ 2,851 (21 ) %
Trading and principal investments 15,028 10,116 49
Asset management and securities services 1,946 2,562 (24 )
Total non-interest revenues 19,237 15,529 24
Interest income 7,832 20,743 (62 )
Interest expense 3,883 18,515 (79 )
Net interest income 3,949 2,228 77
Net revenues, including net interest income 23,186 17,757 31
Operating expenses
Compensation and benefits 11,361 8,523 33
Brokerage, clearing, exchange and distribution fees 1,110 1,531 (27 )
Market development 150 270 (44 )
Communications and technology 346 379 (9 )
Depreciation and amortization (12) 975 474 106
Occupancy 483 470 3
Professional fees 280 363 (23 )
Other expenses 823 772 7
Total non-compensation expenses 4,167 4,259 (2 )
Total operating expenses 15,528 12,782 21
Pre-tax earnings 7,658 4,975 54
Provision for taxes 2,409 1,377 75
Net earnings 5,249 3,598 46
Preferred stock dividends 872 80 N.M.
Net earnings applicable to common shareholders $ 4,377 $ 3,518 24
Earnings per common share
Basic (13) $ 8.81 $ 8.18 8 %
Diluted 8.42 7.81 8
Average common shares outstanding
Basic 495.7 430.3 15
Diluted 520.1 450.6 15
NON-COMPENSATION EXPENSES (UNAUDITED) $ in millions
Three Months Ended % Change From
June 26, March 27, May 30, March 27, May 30,
2009 2009 2008 2009 2008
Non-compensation expenses of consolidated investments(7) $ 286 $ 460 $ 123 (38 ) % 133 %
Non-compensation expenses excluding consolidated investments
Brokerage, clearing, exchange and distribution fees 574 536 741 7 (23 )
Market development 80 66 124 21 (35 )
Communications and technology 171 172 191 (1 ) (10 )
Depreciation and amortization(12) 220 201 184 9 20
Occupancy 223 208 211 7 6
Professional fees 143 133 181 8 (21 )
Other expenses 386 308 313 25 23
Subtotal 1,797 1,624 1,945 11 (8 )
Total non-compensation expenses, as reported $ 2,083 $ 2,084 $ 2,068 - 1
Six Months Ended % Change
From
June 26, May 30, May 30,
2009 2008 2008
Non-compensation expenses of consolidated investments(7) $ 746 $ 248 N.M. %
Non-compensation expenses excluding consolidated investments
Brokerage, clearing, exchange and distribution fees 1,110 1,531 (27 )
Market development 146 265 (45 )
Communications and technology 343 377 (9 )
Depreciation and amortization(12) 421 413 2
Occupancy 431 428 1
Professional fees 276 357 (23 )
Other expenses 694 640 8
Subtotal 3,421 4,011 (15 )
Total non-compensation expenses, as reported $ 4,167 $ 4,259 (2 )
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA (UNAUDITED)
Average Daily VaR (15)
$ in millions
Three Months Ended
June 26, March 27, May 30,
2009 2009 2008
Risk Categories
Interest rates $ 205 $ 218 $ 144
Equity prices 60 38 79
Currency rates 39 38 32
Commodity prices 40 40 48
Diversification effect (16) (99 ) (94 ) (119 )
Total $ 245 $ 240 $ 184
Assets Under Management (17)
$ in billions
As of % Change From
June 30, March 31, May 31, March 31, May 31,
2009 2009 2008 2009 2008
Asset Class
Alternative investments $ 142 $ 141 $ 146 1 % (3 ) %
Equity 121 101 211 20 (43 )
Fixed income 272 248 269 10 1
Total non-money market assets 535 490 626 9 (15 )
Money markets 284 281 269 1 6
Total assets under management $ 819 (6) $ 771 (6) $ 895 6 (8 )
Three Months Ended
June 30, March 31, May 31,
2009 2009 2008
Balance, beginning of period $ 771 $ 798 $ 873
Net inflows / (outflows)
Alternative investments (2 ) (2 ) (3 )
Equity (1 ) (1 ) (18 )
Fixed income 6 (3 ) 10
Total non-money market net inflows / (outflows) 3 (6 ) (11 )
Money markets 3 (5 ) 17
Total net inflows / (outflows) 6 (6) (11 ) (6) 6
Net market appreciation / (depreciation) 42 (16 ) 16
Balance, end of period $ 819 $ 771 $ 895
Principal Investments (18)
$ in millions
As of June 26, 2009
Corporate Real Estate Total
Private $ 9,407 $ 1,812 $ 11,219
Public 1,747 43 1,790
Subtotal 11,154 1,855 13,009
ICBC ordinary shares (19) 6,269 - 6,269
Total $ 17,423 (20) $ 1,855 $ 19,278
Footnotes
(1) Annualized return on average common shareholders' equity (ROE) is
computed by dividing annualized net earnings applicable to common
shareholders by average monthly common shareholders' equity. The
one-time preferred dividend of $426million related to the
repurchase of the firm's TARP preferred stock (calculated as the
difference between the carrying value and the redemption value of
the preferred stock) was not annualized in the calculation of
annualized net earnings applicable to common shareholders since it
has no impact on other quarters in the year. The following table
sets forth our average common shareholders' equity:
Average for the
Three Months Ended Six Months Ended
June 26, 2009 June 26, 2009
(unaudited, $ in millions)
Total shareholders' equity $ 66,870 $ 65,167
Preferred stock (14,125 ) (15,139 )
Common shareholders' equity $ 52,745 $ 50,028
(2) Management believes that presenting the firm's results excluding
the impact of the one-time preferred dividend of $426million
related to the repurchase of the firm's TARP preferred stock is
meaningful because it 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 this one-time preferred dividend:
For the
Three Months Ended Six Months Ended
June 26, 2009 June 26, 2009
(unaudited, in millions, except
per share amounts)
Net earnings applicable to common shareholders $ 2,718 $ 4,377
Impact of one-time TARP preferred dividend 426 426
Net earnings applicable to common shareholders, excluding the 3,144 4,803
impact
of one-time TARP preferred dividend
Divided by: average diluted common shares outstanding 551.0 520.1
Diluted earnings per common share, excluding the impact of one-time $ 5.71 $ 9.23
TARP
preferred dividend
Average for the
Three Months Ended Six Months Ended
June 26, 2009 June 26, 2009
(unaudited, $ in millions)
Total shareholders' equity $ 66,870 $ 65,167
Preferred stock (14,125 ) (15,139 )
Common shareholders' equity 52,745 50,028
Impact of one-time TARP preferred dividend on average common 107 61
shareholders'
equity
Common shareholders' equity, excluding the impact of one-time TARP $ 52,852 $ 50,089
preferred
dividend on average common shareholders' equity
(3) Thomson Reuters - January1,2009 through June26,2009.
(4) 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 is meaningful because it is one
of the 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
June 26, 2009
(unaudited, $ in millions)
Total shareholders' equity $ 62,813
Preferred stock (6,957 )
Common shareholders' equity 55,856
Goodwill and identifiable intangible assets (4,973 )
Tangible common shareholders' equity $ 50,883
(5) 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.
(6) Excludes the federal agency pass-through mortgage-backed securities
account managed for the Federal Reserve.
(7) Consolidated entities held for investment purposes are entities that
are held strictly for capital appreciation, have a defined exit
strategy and are engaged in activities that are not closely related
to the firm's principal businesses. For example, these investments
include consolidated entities that hold real estate assets, such as
hotels, but exclude investments in entities that primarily hold
financial assets. Management believes that it is meaningful to
review non-compensation expenses excluding expenses related to these
consolidated entities in order to evaluate trends in
non-compensation expenses related to the firm's principal business
activities.
(8) As a bank holding company, the firm is subject to regulatory
capital requirements administered by the Federal Reserve Board.
The firm is reporting its Tier1 capital ratio in accordance with
the regulatory capital requirements currently applicable to bank
holding companies, which are based on the Capital Accord of the
Basel Committee on Banking Supervision (BaselI). The Tier1
capital ratio equals Tier1 capital divided by total risk-weighted
assets. The firm's risk-weighted assets under BaselI were
approximately $409billion as of June26,2009. The firm continues
to disclose its Tier1 capital ratio in accordance with the
capital guidelines applicable to it when the firm was regulated by
the SEC as a Consolidated Supervised Entity. These guidelines were
generally consistent with those set out in the Revised Framework
for the International Convergence of Capital Measurement and
Capital Standards issued by the Basel Committee on Banking
Supervision (BaselII). The firm's risk-weighted assets under
BaselII were approximately $382billion as of June26,2009.
These ratios represent preliminary estimates as of the date of
this earnings release and may be revised in the firm's Quarterly
Report on Form10-Q for the fiscal period ended June26,2009. For
a further discussion of the firm's capital requirements, see
"Equity Capital" in PartI, Item2 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the
firm's Quarterly Report on Form10-Q for the fiscal period ended
March27,2009.
(9) This amount represents a preliminary estimate as of the date of
this earnings release and may be revised in the firm's Quarterly
Report on Form10-Q for the fiscal period ended June26,2009.
(10) SFAS No.157, "Fair Value Measurements," establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or
liabilities (level1 measurements) and the lowest priority to
unobservable inputs (level3 measurements). Level3 assets reflect
prices or valuations that require inputs that are both significant
to the fair value measurement and unobservable. For a further
discussion of the firm's level3 assets, see "Critical Accounting
Policies - Fair Value - Fair Value Hierarchy - Level3" in PartI,
Item2 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the firm's Quarterly
Report on Form10-Q for the fiscal period ended March27,2009.
This amount represents a preliminary estimate as of the date of
this earnings release and may be revised in the firm's Quarterly
Report on Form10-Q for the fiscal period ended June26,2009.
(11) 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 overnight cash deposits. This liquidity is intended to allow
the firm to meet immediate obligations without the need to sell
other assets or depend on additional funding from credit-sensitive
markets in a difficult funding environment. This amount represents
the average loan value (the estimated amount of cash that would be
advanced by counterparties against these securities), as well as
overnight cash deposits, of the global core excess. For a further
discussion of the firm's global core excess liquidity pool, please
see "Liquidity and Funding Risk" in PartI, Item2 "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the firm's Quarterly Report on Form10-Q for the
fiscal period ended March27,2009. This amount represents a
preliminary estimate as of the date of this earnings release and
may be revised in the firm's Quarterly Report on Form10-Q for the
fiscal period ended June26,2009.
(12) Beginning in the second quarter of 2009, "Amortization of
identifiable intangible assets" is included in "Depreciation and
amortization" in the consolidated statements of earnings. Prior
periods have been reclassified to conform to the current
presentation.
(13) Basic earnings per common share for the three and six months ended
June26,2009 were computed in accordance with FASB Staff Position
(FSP) No. EITF 03-6-1, "Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities,"
and the impact was a reduction of $0.02 per basic common share.
There was no impact from the adoption of FSP No. EITF 03-6-1 to
earnings per basic common share for the quarter ended
March27,2009. Prior periods have not been restated due to
immateriality.
(14) Includes employees, consultants and temporary staff. Excludes
total staff of approximately 3,900, 3,900 and 4,900 as of
June26,2009, March27,2009 and May30,2008, respectively, of
consolidated entities held for investment purposes. Compensation
and benefits includes $66 million, $70 million and $66 million for
the three months ended June26,2009, March27,2009 and
May30,2008, respectively, attributable to these consolidated
entities.
(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 PartII,
Item7A "Quantitative and Qualitative Disclosures About Market
Risk" in the firm's Annual Report on Form10-K for the fiscal year
ended November28,2008.
(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) Substantially all assets under management are valued as of calendar
month-end. Assets under management do not include the firm's
investments in funds that it manages.
(18) Represents investments included within the Principal Investments
component of the firm's Trading and Principal Investments segment.
(19) Includes interests of $3.96billion as of June26,2009 held by
investment funds managed by the firm. The fair value of the
investment in the ordinary shares of ICBC, which trade on The
Stock Exchange of Hong Kong, includes the effect of foreign
exchange revaluation for which the firm maintains an economic
currency hedge. On April28,2009, 20% of the ICBC shares held by
the firm became free from transfer restrictions and the firm
completed the disposition of these shares during the quarter. The
remaining ICBC shares held by the firm are subject to transfer
restrictions, which prohibit liquidation at any time prior to
April28,2010.
(20) Excludes the firm's investment in the convertible preferred stock of
Sumitomo Mitsui Financial Group, Inc. The firm has hedged all of the
common stock underlying this investment.
SOURCE: The Goldman Sachs Group, Inc.
The Goldman Sachs Group, Inc. Media Relations: Lucas van Praag, 212-902-5400 Investor Relations: Dane E. Holmes, 212-902-0300
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