Goldman Sachs Reports First Quarter Earnings Per Common Share of $3.39

NEW YORK--()--The Goldman Sachs Group, Inc. (NYSE: GS) today reported net revenues of $9.43 billion and net earnings of $1.81 billion for its first quarter ended March 27, 2009. Diluted earnings per common share were $3.39 compared with $3.23 for the first quarter ended February 29, 2008 and a diluted loss per common share of $4.97 for the fourth quarter ended November 28, 2008. Annualized return on average common shareholders’ equity (1) was 14.3% for the first quarter of 2009.

Business Highlights

  • Goldman Sachs ranked first in worldwide completed mergers and acquisitions for the calendar year-to-date. (2)
  • Fixed Income, Currency and Commodities (FICC) generated record quarterly net revenues of $6.56 billion, 34% higher than its previous record, reflecting strength across most businesses, including record results in interest rate products and commodities.
  • The firm’s Tier 1 Ratio under Basel II (3) was 16.0% at the end of the first quarter of 2009, up from 15.6% as of November 28, 2008. The firm’s Tier 1 Ratio under Basel I (3) was 13.7% at the end of the first quarter of 2009.
  • The firm’s average global core excess (4) liquidity was $163.74 billion for the first quarter of 2009, up from $111.43 billion for the fourth quarter of 2008.

______________

“Given the difficult market conditions, we are pleased with this quarter's performance,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer. “Our results reflect the strength and diversity of our client franchise, the resilience of our business model and the dedication and focus of our people. We believe these attributes position the firm to continue to create value for our clients and actively fulfill our role in the capital markets.”

Net Revenues

Investment Banking

Net revenues in Investment Banking were $823 million, 30% lower than the first quarter of 2008 and 20% lower than the fourth quarter of 2008.

Net revenues in Financial Advisory were $527 million, 21% lower than the first quarter of 2008, reflecting lower levels of deal activity. Net revenues in the firm’s Underwriting business were $296 million, 42% lower than the first quarter of 2008. Net revenues in equity underwriting were significantly lower, primarily reflecting a significant decline in industry-wide equity and equity-related offerings. Net revenues in debt underwriting were also significantly lower, primarily due to a decline in leveraged finance activity. The firm’s investment banking transaction backlog decreased from the end of fiscal year 2008. (5)

Trading and Principal Investments

Net revenues in Trading and Principal Investments were $7.15 billion, compared with net revenues of $5.12 billion for the first quarter of 2008 and negative net revenues of $4.36 billion for the fourth quarter of 2008.

Net revenues in FICC were $6.56 billion, more than double the amount in the first quarter of 2008. These results reflected particularly strong performance in interest rate products, commodities and credit products, as FICC operated in a generally favorable environment characterized by client-driven activity, particularly in more liquid products, and high levels of volatility. However, illiquid assets generally continued to decline in value. Net revenues in currencies were solid, but lower compared with a particularly strong first quarter of 2008. Results in mortgages were higher compared with a difficult first quarter of 2008. During the quarter, credit products included losses from corporate debt and private equity investments, and mortgages included a loss of approximately $800 million (excluding hedges) on commercial mortgage loans and securities. In the first quarter of 2008, credit products included a loss of approximately $1 billion, net of hedges, related to non-investment-grade credit origination activities, and mortgages included a net loss of approximately $1 billion on residential mortgage loans and securities.

Net revenues in Equities were $2.00 billion, 20% lower than the first quarter of 2008. Net revenues in the shares business were lower compared with the first quarter of 2008 due to lower commissions, primarily reflecting lower levels of activity outside of the U.S. Net revenues in derivatives were solid, but lower compared with the first quarter of 2008. Results in principal strategies were also lower compared with the first quarter of 2008. During the quarter, Equities operated in an environment generally characterized by continued weakness in global equity markets and high, but declining, levels of volatility.

Principal Investments recorded a net loss of $1.41 billion for the first quarter of 2009. These results included net losses of $640 million from real estate principal investments and $621 million from corporate principal investments, as well as a $151 million loss related to the firm’s investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC).

Asset Management and Securities Services

Net revenues in Asset Management and Securities Services were $1.45 billion, 29% lower than the first quarter of 2008 and 17% lower than the fourth quarter of 2008.

Asset Management net revenues were $949 million, 28% lower than the first quarter of 2008, due to lower management and other fees, reflecting lower assets under management, principally due to market depreciation, and lower incentive fees. During the quarter, assets under management decreased $27 billion to $771 billion (6), due to $16 billion of market depreciation, primarily in equity assets, and $11 billion of net outflows.

Securities Services net revenues were $503 million, 30% lower than the first quarter of 2008. The decrease in net revenues primarily reflected the impact of lower customer balances compared with the first quarter of 2008.

Expenses

Operating expenses were $6.80 billion, 10% higher than the first quarter of 2008.

Compensation and Benefits

Compensation and benefits expenses (including salaries, discretionary compensation, amortization of prior year equity awards and other items such as payroll taxes, severance costs and benefits) were $4.71 billion, 18% higher than the first quarter of 2008, primarily due to higher net revenues. The ratio of compensation and benefits to net revenues was 50.0%, compared with 48.0% for the first quarter of 2008. Employment levels decreased 7% compared with the end of fiscal year 2008.

Non-Compensation Expenses

Non-compensation expenses, excluding consolidated entities held for investment purposes (7), were $1.62 billion, 21% lower than the first quarter of 2008 and 25% lower than the fourth quarter of 2008. More than one-half of the decrease compared with the first quarter of 2008 was attributable to lower brokerage, clearing, exchange and distribution fees, principally reflecting lower transaction volumes in Equities. The remainder of the decrease compared with the first quarter of 2008 generally reflected lower levels of business activity, the impact of reduced employment levels and the effect of expense reduction initiatives. The increase in non-compensation expenses related to consolidated entities held for investment purposes primarily reflected impairment charges of approximately $300 million related to real estate assets during the first quarter of 2009. Including consolidated entities held for investment purposes, non-compensation expenses were $2.08 billion, 5% lower than the first quarter of 2008 and 17% lower than the fourth quarter of 2008.

Provision for Taxes

The effective income tax rate for the first quarter of 2009 was 31.0%, up from approximately 1% for fiscal year 2008 and 29.5% for the first quarter of 2008. The increases in the effective tax rate were primarily due to changes in geographic earnings mix.

Capital

As of March 27, 2009, total capital was $252.08 billion, consisting of $63.55 billion in total shareholders’ equity (common shareholders’ equity of $47.05 billion and preferred stock of $16.51 billion) and $188.53 billion in unsecured long-term borrowings. Book value per common share was $98.82 and tangible book value per common share (8) was $88.02, both essentially unchanged from November 28, 2008. 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 476.1 million at period end.

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 Ratio under Basel II (3) was 16.0% as of March 27, 2009. Under the regulatory capital guidelines currently applicable to bank holding companies, the firm’s Tier 1 Ratio under Basel I (3) was 13.7% as of March 27, 2009.

Other Balance Sheet and Liquidity Metrics

  • Total assets (9) were $925 billion as of March 27, 2009, up 5% from November 28, 2008.
  • Level 3 assets (10) were approximately $59 billion as of March 27, 2009 (down from $66 billion as of November 28, 2008) and represented 6.4% of total assets.
  • Average global core excess (4) liquidity was $163.74 billion for the first quarter of 2009, up from $111.43 billion for the fourth quarter of 2008.

Dividends

The Board of Directors of The Goldman Sachs Group, Inc. (the Board) declared a dividend of $0.35 per common share to be paid on June 25, 2009 to common shareholders of record on May 26, 2009. The Board also declared dividends of $234.38, $387.50, $250.00 and $250.00 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 May 11, 2009 to preferred shareholders of record on April 26, 2009. In addition, the Board declared dividends of $2,500 per share of Series G Preferred Stock to be paid on May 11, 2009 to preferred shareholders of record on April 25, 2009 and dividends of $12.50 per share of Series H Preferred Stock to be paid on May 15, 2009 to preferred shareholders of record on April 30, 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 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 Tuesday, April 14, 2009 at 7:00 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 91133807, 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
Mar. 27,   Nov. 28,   Feb. 29, Nov. 28, Feb. 29,
2009 2008 2008 2008 2008
Investment Banking    
Financial Advisory $ 527 $ 574 $ 663 (8 ) % (21 ) %
 
Equity underwriting 48 273 172 (82 ) (72 )
Debt underwriting   248     187     337     33     (26 )
Total Underwriting 296 460 509 (36 ) (42 )
                       
Total Investment Banking   823     1,034     1,172     (20 )   (30 )
 
Trading and Principal Investments
FICC 6,557 (3,403 ) 3,142 N.M. 109
 
Equities trading 1,027 1,325 1,276 (22 ) (20 )
Equities commissions   974     1,318     1,238     (26 )   (21 )
Total Equities 2,001 2,643 2,514 (24 ) (20 )
 
ICBC (151 ) (631 ) (135 ) N.M. N.M.
Other corporate and real estate gains and losses (1,261 ) (2,965 ) (410 ) N.M. N.M.
Overrides   4     -     13     N.M.     (69 )
Total Principal Investments (1,408 ) (3,596 ) (532 ) N.M. N.M.
                       
Total Trading and Principal Investments   7,150     (4,356 )   5,124     N.M.     40  
 
Asset Management and Securities Services
Management and other fees 931 930 1,123 - (17 )
Incentive fees   18     15     194     20     (91 )
Total Asset Management 949 945 1,317 - (28 )
 
Securities Services 503 799 722 (37 ) (30 )
                       
Total Asset Management and Securities Services   1,452     1,744     2,039     (17 )   (29 )
                       
Total net revenues $ 9,425   $ (1,578 ) $ 8,335     N.M.     13  
 

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
In millions, except per share amounts and employees

   
Three Months Ended % Change From
Mar. 27,   Nov. 28,   Feb. 29, Nov. 28, Feb. 29,
2009 2008 2008 2008 2008
Revenues    
Investment banking $ 823 $ 1,034 $ 1,166 (20 ) % (29 ) %
Trading and principal investments 5,706 (4,461 ) 4,877 N.M. 17
Asset management and securities services 989 936 1,341 6 (26 )
Interest income   4,362     6,173     11,245     (29 )   (61 )
Total revenues 11,880 3,682 18,629 N.M. (36 )
 
Interest expense   2,455     5,260     10,294     (53 )   (76 )
 
Revenues, net of interest expense   9,425     (1,578 )   8,335     N.M.     13  
 
Operating expenses
Compensation and benefits 4,712 (490 ) 4,001 N.M. 18
 
Brokerage, clearing, exchange and distribution fees 536 733 790 (27 ) (32 )
Market development 68 96 144 (29 ) (53 )
Communications and technology 173 188 187 (8 ) (7 )
Depreciation and amortization 511 418 170 22 N.M.
Amortization of identifiable intangible assets 38 70 84 (46 ) (55 )
Occupancy 241 253 236 (5 ) 2
Professional fees 135 248 178 (46 ) (24 )
Other expenses   382     505     402     (24 )   (5 )
Total non-compensation expenses 2,084 2,511 2,191 (17 ) (5 )
                       
Total operating expenses   6,796     2,021     6,192     N.M.     10  
 
Pre-tax earnings / (loss) 2,629 (3,599 ) 2,143 N.M. 23
Provision / (benefit) for taxes   815     (1,478 )   632     N.M.     29  
Net earnings / (loss) 1,814 (2,121 ) 1,511 N.M. 20
 
Preferred stock dividends   155     166     44     (7 )   N.M.  
Net earnings / (loss) applicable to common shareholders $ 1,659   $ (2,287 ) $ 1,467     N.M.     13  
 
 
Earnings / (loss) per common share
Basic $ 3.48 $ (4.97 ) $ 3.39 N.M. % 3 %
Diluted 3.39 (4.97 ) 3.23 N.M. 5
 
Average common shares outstanding
Basic 477.4 459.9 432.8 4 10
Diluted 489.2 459.9 453.5 6 8
 
Selected Data
Employees at period end (11) 27,898 30,067 31,874 (7 ) (12 )
 

NON-COMPENSATION EXPENSES
(UNAUDITED)
$ in millions

   
Three Months Ended % Change From
Mar. 27,   Nov. 28,   Feb. 29, Nov. 28, Feb. 29,
2009 2008 2008 2008 2008
   
Non-compensation expenses of consolidated investments (7) $ 460 $ 337 $ 125 36 % N.M. %
 
Non-compensation expenses excluding consolidated investments
Brokerage, clearing, exchange and distribution fees 536 733 790 (27 ) (32 )
Market development 66 93 141 (29 ) (53 )
Communications and technology 172 186 186 (8 ) (8 )
Depreciation and amortization 166 182 146 (9 ) 14
Amortization of identifiable intangible assets 35 67 83 (48 ) (58 )
Occupancy 208 224 217 (7 ) (4 )
Professional fees 133 246 176 (46 ) (24 )
Other expenses   308   443   327 (30 ) (6 )
Subtotal 1,624 2,174 2,066 (25 ) (21 )
           
Total non-compensation expenses, as reported $ 2,084 $ 2,511 $ 2,191 (17 ) (5 )
 

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(UNAUDITED)

 
Average Daily VaR (12)
$ in millions
 
  Three Months Ended              
Mar. 27, Nov. 28,       Feb. 29,
2009 2008 2008
Risk Categories
Interest rates $ 218 $ 178 $ 106
Equity prices 38 51 89
Currency rates 38 32 31
Commodity prices 40 38 38
Diversification effect (13)   (94 )   (102 )   (107 )
Total $ 240   $ 197   $ 157  
 
 
Assets Under Management (14)
$ in billions
 
As of % Change From
Mar. 31, Nov. 30, Feb. 29, Nov. 30, Feb. 29,
2009 2008 2008 2008 2008
Asset Class
Alternative investments $ 141 $ 146 $ 148 (3 ) % (5 ) %
Equity 101 112 214 (10 ) (53 )
Fixed income   248     248     259     -     (4 )
Total non-money market assets 490 506 621 (3 ) (21 )
 
Money markets   281     273     252     3     12  
Total assets under management $ 771  

(6)

$ 779   $ 873     (1 )   (12 )
 
 
Three Months Ended
Mar. 31, Nov. 30, Feb. 29,
2009 2008 2008
 
Balance, beginning of period $ 798

(15)

$ 863 $ 868
 
Net inflows / (outflows)
Alternative investments (2 ) 4 (2 )
Equity (1 ) (8 ) (17 )
Fixed income   (3 )   (1 )   2  
Total non-money market net inflows / (outflows) (6 ) (5 ) (17 )
 
Money markets   (5 )   11     46  
Total net inflows / (outflows) (11 )

(6)

6 29
 
Net market appreciation / (depreciation) (16 ) (90 ) (24 )
     
Balance, end of period $ 771   $ 779   $ 873  
 
 

Principal Investments (16)

$ in millions
 
As of March 27, 2009
Corporate Real Estate Total
 
Private $ 8,911 $ 1,914 $ 10,825
Public   1,609     27     1,636  
Subtotal 10,520 1,941 12,461
ICBC ordinary shares (17)   5,754     -     5,754  
Total $ 16,274  

(18)

$ 1,941   $ 18,215  
 

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
RESULTS FOR THE ONE MONTH ENDED DECEMBER 26, 2008
(UNAUDITED)
In millions, except assets under management (in billions), per share amounts and employees

         
SEGMENT NET REVENUES CONSOLIDATED STATEMENT OF EARNINGS
 
One Month Ended One Month Ended
Dec. 26, Dec. 26,
2008 2008
Investment Banking Revenues
Financial Advisory $ 72 Investment banking $ 135
Trading and principal investments (964 )
Equity underwriting 19 Asset management and securities services 327
Debt underwriting   44   Interest income   1,687  
Total Underwriting 63 Total revenues 1,185
 
Total Investment Banking   135   Interest expense   1,002  
 
Trading and Principal Investments Revenues, net of interest expense   183  
FICC (19) (320 )
Operating expenses
Equities trading 363 Compensation and benefits 744
Equities commissions   251  
Total Equities 614 Brokerage, clearing, exchange and distribution fees 165
Market development 16
ICBC 228 Communications and technology 62
Other corporate and real estate gains and losses (1,030 ) Depreciation and amortization 72
Overrides   1   Amortization of identifiable intangible assets 39
Total Principal Investments (801 ) Occupancy 82
  Professional fees 58
Total Trading and Principal Investments   (507 ) Other expenses   203  
Total non-compensation expenses 697
Asset Management and Securities Services  
Management and other fees 318 Total operating expenses   1,441  
Incentive fees   1  
Total Asset Management 319 Pre-tax loss (1,258 )
Benefit for taxes   (478 )
Securities Services 236 Net loss (780 )
 
Total Asset Management and Securities Services   555   Preferred stock dividends   248  
  Net loss applicable to common shareholders $ (1,028 )
Total net revenues $ 183  
 
Loss per common share (20)
Basic $ (2.15 )
ASSETS UNDER MANAGEMENT (14) Diluted (2.15 )
 
As of Average common shares outstanding
Dec. 31, Basic 485.5
2008 Diluted 485.5
Asset Class
Alternative investments $ 145 Selected Data
Equity 114 Employees at period end (11) 29,182
Fixed income   253  
Total non-money market assets 512
 
Money markets   286   NON-COMPENSATION EXPENSES
Total assets under management $ 798  

 

One Month Ended

One Month Ended

Dec. 31,

Dec. 26,

2008

2008

Non-compensation expenses of consolidated investments (7) $ 60
Balance, beginning of period $ 779
Non-compensation expenses excluding consolidated investments
Net outflows Brokerage, clearing, exchange and distribution fees 165
Alternative investments (2 ) Market development 15
Equity (2 ) Communications and technology 62
Fixed income   (3 ) Depreciation and amortization 49
Total non-money market net outflows (7 ) Amortization of identifiable intangible assets 38
Occupancy 72
Money markets   13   Professional fees 57
Total net inflows 6 Other expenses   179  
Subtotal 637
Net market appreciation 13  
  Total non-compensation expenses, as reported $ 697  
Balance, end of period $ 798  
 
 

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.
                 
Average for the
Three Months Ended

March 27, 2009

 

(unaudited, $ in millions)

Total shareholders' equity

 

$ 63,061
Preferred stock   (16,495 )
Common shareholders' equity $ 46,566  
 
(2)     Thomson Reuters – January 1, 2009 through March 27, 2009.
 
(3)

The Tier 1 Ratio equals Tier 1 capital divided by total risk-weighted assets. The firm continues to report its Tier 1 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 (Basel II). The firm’s risk-weighted assets under Basel II were approximately $385 billion as of March 27, 2009. This ratio represents a preliminary estimate as of the date of this earnings release and may be revised in the firm’s Quarterly Report on Form 10-Q for the fiscal period ended March 27, 2009. As a bank holding company, the firm is subject to regulatory capital requirements administered by the U.S. federal banking agencies. Beginning in the first quarter of 2009, the firm is reporting its Tier 1 Ratio in accordance with the regulatory capital guidelines currently applicable to bank holding companies, which are based on the Capital Accord of the Basel Committee on Banking Supervision (Basel I). The firm’s risk-weighted assets under Basel I were approximately $415 billion as of March 27, 2009. As of the date of this earnings release, the calculation of this estimated ratio has not been reviewed with the Federal Reserve Board and, accordingly, the ratio may be revised in the firm’s Quarterly Report on Form 10-Q for the fiscal period ended March 27, 2009. For a further discussion of the firm's capital requirements, see "Equity Capital” in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the firm's Annual Report on Form 10-K for the fiscal year ended November 28, 2008.

 
(4)

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 Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the firm's Annual Report on Form 10-K for the fiscal year ended November 28, 2008. 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 Form 10-Q for the fiscal period ended March 27, 2009.

 
(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) 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 a reconciliation of total shareholders' equity to tangible common shareholders' equity:
                 
As of
March 27, 2009

 

(unaudited, $ in millions)

Total shareholders' equity

 

$ 63,553
Preferred stock   (16,507 )
Common shareholders' equity 47,046
Goodwill and identifiable intangible assets   (5,138 )
Tangible common shareholders' equity $ 41,908  
 
(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 Form 10-Q for the fiscal period ended March 27, 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 (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). Level 3 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 level 3 assets, see "Critical Accounting Policies – Fair Value – Fair Value Hierarchy – Level 3” in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the firm's Annual Report on Form 10-K for the fiscal year ended November 28, 2008. 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 Form 10-Q for the fiscal period ended March 27, 2009.

 
(11)

Excludes 3,930, 4,631, 4,671 and 4,818 employees as of March 27, 2009, December 26, 2008, November 28, 2008 and February 29, 2008, respectively, of consolidated entities held for investment purposes. Compensation and benefits includes $70 million, $23 million, $70 million and $63 million for the three months ended March 27, 2009, one month ended December 26, 2008, and three months ended November 28, 2008 and February 29, 2008, respectively, attributable to these consolidated entities.

 
(12)

VaR is the potential loss in value of Goldman Sachs’ 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 Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in the firm’s Annual Report on Form 10-K for the fiscal year ended November 28, 2008.

 
(13) 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.
 
(14) 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.
 
(15)

Includes market appreciation of $13 billion and net inflows of $6 billion in December 2008.

 
(16) Represents investments included within the Principal Investments component of the firm’s Trading and Principal Investments segment.
 
(17)

Includes interests of $3.64 billion as of March 27, 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. During the quarter ended March 27, 2009, the firm committed to supplemental transfer restrictions in relation to its investment in ICBC. Under the prior transfer restrictions, the ICBC shares held by the firm would have become free from transfer restrictions in equal installments on April 28, 2009 and October 20, 2009. Under the new transfer restrictions, the firm will not liquidate 80% of the ICBC shares currently held by the firm at any time prior to April 28, 2010.

 
(18) 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.
 
(19)

Includes writedowns of approximately $1 billion related to non-investment-grade credit origination activities and approximately $625 million (excluding hedges) related to commercial mortgage loans and securities.

 
(20)

In June 2008, the FASB issued FASB Staff Position (FSP) No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” effective for fiscal years beginning after December 15, 2008. The FSP requires unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents to be treated as a separate class of securities in calculating earnings per share. There was no impact from the adoption of FSP No. EITF 03-6-1 to earnings per common share for the quarter ended March 27, 2009. The loss per common share for the one month ended December 26, 2008 was computed in accordance with the FSP and the impact was a loss per common share of $0.03. Prior periods have not been restated due to immateriality.

Contacts

The Goldman Sachs Group, Inc.
Media Relations:
Lucas van Praag, 212-902-5400

Investor Relations:
Dane E. Holmes, 212-902-3580

Contacts

The Goldman Sachs Group, Inc.
Media Relations:
Lucas van Praag, 212-902-5400

Investor Relations:
Dane E. Holmes, 212-902-3580