NEW YORK--(BUSINESS WIRE)--Third quarter 2013 (3Q'13) net revenues for The Goldman Sachs Group, Inc. (Goldman) were weaker than Fitch Ratings' expectations, driven by significant declines in fixed income, currency and commodities trading and investment banking. That said, Fitch views the firm's ability to reduce compensation expenses to offset net revenue declines positively, as it reflects the somewhat variable nature of the cost structure.
Goldman also continues to maintain conservative liquidity and capital, and reported a higher estimated Basel III capital ratio this quarter. These results have no rating implications on Goldman's 'A/F1' ratings or Stable Outlook, although the ability to manage market risk in the trading business through volatile market conditions will remain an important rating consideration.
Total revenues declined 22% sequentially, driven by the uncertain macroeconomic environment surrounding interest rates and U.S. fiscal policy, reduced client activity and seasonality. Net earnings were down 21% from 2Q'13 and flat compared with 3Q'12. Lower variable expenses, primarily lower compensation and benefits, which were 36% lower sequentially and 35% on a year-over-year (YoY) basis, supported bottom line results.
Institutional client services continues to be the major contributor to revenues at 43% of total, despite a 33% decline in revenues (excluding DVA impact) from both 2Q'13 and YoY. Goldman's fixed income business was particularly challenged by a 47% quarter-over-quarter (QoQ) decrease in net revenues (excluding DVA impact) which was significantly weaker than peers. The equity business, excluding the sale of the reinsurance business, was flat as compared with the prior year despite the difficult operating environment. Trading VaR was up sequentially due to a higher contribution from interest rates, partially offset by a lower contribution from currency rates.
Investment banking revenues were down 25% from a strong 2Q'13, as lower M&A activity negatively affected advisory revenues, which was consistent with industry volumes. Underwriting revenues were lower sequentially when compared to a very strong 2Q'13 but improved YoY primarily due to higher net revenues from IPOs. The investment banking backlog remains strong, which should position Goldman's investment banking business well for a pickup in economic activity.
Investing and lending revenues were positively impacted by mark-to-market gains on private equity investment and continued interest income on fixed income investments. Results for this segment are volatile as they tend to move with broader market conditions and rate movements. Asset management revenues were slightly lower than 2Q'13. Assets under supervision were positively impacted by market appreciation and net inflows.
Global core excess liquidity, including unencumbered, highly liquid securities and cash, stood at a solid $175 billion (19% of total assets) and averaged $187 billion during the quarter as compared with $180 billion in 2Q'13. Liquidity has been consistently maintained at conservative levels over the past several years.
Goldman estimated that its Tier I common ratio under Basel III was 9.8% compared with approximately 9.3% at end-2Q'13. The ratio is comfortably above the 8.5% minimum (7% plus the 1.5% G-SIFI buffer) and above Goldman's 9.5% target. Goldman also estimated that its supplementary leverage ratios were approximately 5% at the holding company and approximately 6% at Goldman Sachs Bank USA, both of which are in line with proposed regulatory minimums.
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