Fitch: Goldman Reports Solid 1Q'14 Results

NEW YORK--()--The Goldman Sachs Group, Inc. (Goldman) reported solid results for first quarter 2014 (1Q'14) generally in line with Fitch Ratings' expectations. Results were moderately lower than 4Q'13; but benefitting from strong fixed income, currency and commodities trading and lower non-compensation expenses offset by elevated compensation expenses.

Net revenues (excluding DVA) increased 4% sequentially to $9.3 billion at 1Q'14 despite continued uncertainty surrounding macroeconomic environment conditions, Federal Reserve bond buying tapering and interest rates. Non-compensation expenses declined 24% quarter-over-quarter (QoQ) primarily due to lower provisions for legal and regulatory matters. Compensation expenses increased $1.8 billion to $4 billion at 1Q'14 due to seasonality, but was 8% lower than 1Q'13. Compensation represented 43% of net revenues at 1Q'14 unchanged from 1Q'13.

Institutional Client Services net revenues (excluding DVA impact and the sale of the reinsurance business in 2013) increased 23% sequentially, but was down 11% from 1Q'13. Fixed income net revenues (excluding DVA) improved 50% from 4Q'13, but was 13% lower than 1Q'13. The increase was driven by higher market activity in commodities, rates and mortgages. Equities decreased 7% from 1Q'13(excluding the sale of Goldman's reinsurance business) as a result of less favorable market conditions primarily in Japan and certain emerging markets. Trading value at risk (VaR) of $82 billion was virtually unchanged from 4Q'13.

Investment banking revenues of $1.8 billion were 4% higher than 4Q'13 driven by strong advisory business. Underwriting revenues were down 3% QoQ and virtually unchanged year-over-year (YoY). Debt underwriting revenues were up 29% from 4Q'13 due to an increase in investment grade and leveraged finance activity. Lower equity underwriting revenues were due to fewer IPOs during 1Q'14, which is consistent with industry volumes. The backlog for investment banking remains strong and Goldman should benefit from increased activity.

Investing and lending revenues decreased 26% both QoQ and YoY. Net revenues for equity securities declined 50% from a strong 4Q'13. Debt securities and loan, however, benefitted from higher gains on investments and net interest income. Asset management revenues of $1.5 billion were unchanged sequentially, but up 20% YoY. Assets under supervision increased to a record $1.08 trillion, due to net inflows and market appreciation.

Over the past several years, Goldman has consistently maintained liquidity at conservative levels. Global core excess liquidity, including unencumbered, highly liquid securities and cash, was a solid $175 billion or 19% of total assets at 1Q'14.

Goldman estimated that its Tier 1 common ratio under Basel III advanced approach at 1Q'14 was 11.3% on a transitional basis, comfortably above the 8.5% minimum and above Goldman's target of 9.5%. Goldman estimated that its supplementary leverage ratio (SLR) under the rules recently proposed by the Federal Reserve was approximately 4.2% for the holding company, below the minimum threshold of 5%. Under the new proposal, the holding company SLR was negatively impacted by the CDS add-on and collateralized assets associated with customer activity. Furthermore, fund investments, which Goldman is required to reduce as part of the Volcker Rule, continue to negatively impact the SLR. Goldman estimates that harvesting these fund investments should improve the holding company SLR by approximately 50 basis points. Goldman estimated that the Goldman Sachs Bank USA's SLR was 5.6% at 1Q'14, below the minimum threshold of 6%. Fitch believes that Goldman will be able to meet the supplementary leverage minimums ahead of implementation deadline in 2018.

During 1Q'14, as part of Goldman's share repurchase program, $1.72 billion of common shares were repurchased. Goldman received a no objection to its capital request under CCAR but only after it revised its submission.

Additional information is available at 'www.fitchratings.com'.

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Contacts

Fitch Ratings, Inc.
Tara Kriss
Senior Director
+1-212-908-0369
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Ilya Ivashkov, CFA
Senior Director
+1-212-908-0769
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings, Inc.
Tara Kriss
Senior Director
+1-212-908-0369
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Ilya Ivashkov, CFA
Senior Director
+1-212-908-0769
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com